I think the best way to invest is to focus on the long-term rather than the short-term.
If you can find shares that can keep growing for many years ahead you’re probably going to do well.
The healthcare sector has a few advantages compared to other sectors. The ageing demographics of Australia and other western nations means that demand may steadily rise across the board for a number of years. The healthcare sector is also somewhat supported by the government indirectly through various funding measures to patients, hospitals and so on.
With that in mind, these two ASX shares could be good ideas:
ResMed Inc (ASX: RMD)
ResMed is regarded as one of the highest-quality healthcare shares on the ASX. It has a global revenue base, is exposed to the growth area of sleep apnoea with its masks and continues to grow its profit margin.
A recent bonus to Resmed is that it is increasing its software as a service (SaaS) revenue, which is high-margin for the company. Its recent acquisitions in this space are very promising.
ResMed is trading at 34x FY20’s estimated earnings.
Paragon Care Ltd (ASX: PGC)
Paragon is a small cap healthcare distribution business which supplies clients like hospitals and aged care facilities with products like beds, devices and equipment.
Certain ‘legacy’ capital equipment businesses are being a drain on Paragon’s profit, which may substantially and negatively affect the FY19 result. However, if it can sell or improve that division then today’s share price could appear quite cheap on a longer-term outlook.
Paragon is also working on lowering costs and improving efficiencies. It believes it’s on track to achieve ‘continuing’ revenue of $240 million and continuing earnings before interest, tax, depreciation and amortisation (EBITDA) of $28 million in FY19.
It’s trading at 6x FY21’s estimated earnings, but there is no guarantee it will earn 6.6 cents in earnings per share (EPS) terms in two years from now.
Both of these businesses could justify an investment. However, ResMed is trading at an all-time high whilst Paragon is going through troubles. Whilst it would be a bit of a gamble, I think Paragon can turn itself around, so I’d go for the value share choice.