In my opinion the healthcare industry may be one of the best to find good businesses on the ASX.
There’s a growing local and global demand for healthcare services with the ageing population and the desire for better health outcomes. It also helps that various governments assist the healthcare industry with different forms of support.
You could also say that the earnings of healthcare businesses are quite defensive due to how consistently people are sick month to month and through economic cycles. That’s why I like the idea of these two ASX healthcare shares:
Paragon Care Ltd (ASX: PGC)
This small cap distributes products to healthcare providers like aged care facilities and hospitals, both private and public ones.
I like this generalised approach because it means that Paragon isn’t reliant on it being the best treatment or having the best technology like some other healthcare businesses.
It recently announced the sale of its ‘legacy capital business’ which has been acting like a drag on profit in recent times, so when the sale is complete the remaining Paragon business should have higher profit margins with better growth potential. More elderly patients over time will hopefully lead to higher earnings and dividends.
It’s currently trading at 10x FY20’s estimated earnings.
CSL Limited (ASX: CSL)
I think CSL has proved this reporting season that it is one of the best businesses on the ASX and has been for over a decade.
Even though it’s changing to a different distribution model in China, which will have a significant one-off financial effect in FY20, the impressive healthcare giant is still predicting that profit can grow by 7% to 10%.
A strong product pipeline is being fuelled by solid research & development expenditure which will help grow revenue and profit for the coming years.
There’s a high annual demand for vaccines and CSL’s other products, which generates a lot of repeat business.
CSL is trading at 32x FY21’s estimated earnings.
I think CSL is one of the highest-quality businesses on the ASX whilst Paragon could be very cheap today if it can get back to earnings growth in FY20. I may be a bit biased, but I think Paragon could deliver a solid return over the next two years from this share price.
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Tristan Harrison owns shares of Paragon Care Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia has recommended Paragon Care Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.