The healthcare industry could be the best place to find defensive and sustainable earnings growth in this world of slow growth, low inflation and ultra-low interest rates.
Many ASX healthcare shares are exposed to the ageing demographics in Australia whilst others are driving technological advancement in the industry which commands higher revenue from customers.
Here are three of the ASX healthcare shares I’d consider for my own portfolio:
CSL Limited (ASX: CSL)
When you think of potential investment options in the healthcare sector the first name that should come to mind is CSL. Some people call it the best business in Australia due to its high-quality earnings and its focus on re-investing on research & development for the future.
Its core portfolio of plasma products continues to see steady, growing demand and I think the other CSL segments are exciting profit drivers.
I think it’s also a good sign of quality that CSL focuses on revenue and net profit, rather than on profit measures like earnings before interest, tax, depreciation and amortisation (EBITDA) which can be misunderstood or manipulated.
It’s trading at 30x FY21’s estimated earnings.
Ramsay Health Care Limited (ASX: RHC)
Ramsay is another business which could claim to be one of Australia’s best. After many years of organic growth, organic expansion and acquisitions its has turned into a large private hospital force in the western world.
It now has very large operations in Europe after its recent Capio acquisition. The number of elderly expected to go through private hospital doors is expected to steadily climb over the next few decades, particularly because of the amount of ‘non-emergency’ surgeries that are likely to occur.
Private health insurance affordability could be a growing issue, but Ramsay may be able to do well enough despite that problem. It’s currently trading at 21x FY20’s estimated earnings.
Paragon Care Ltd (ASX: PGC)
Paragon is a small cap healthcare item distributor of things like beds, surgery equipment and devices.
It has gone through a rough period recently, but that could be over with the FY19 result out of the way and the sale of its ‘legacy’ capital business. If Paragon can achieve decent organic revenue growth at a higher profit margin than previous years then it could be a good ‘cheap’ option at today’s price.
Paragon is not for the faint hearted at the moment, but there is a compelling story for a potential turnaround over the next 12 months.
It’s valued at under 9x FY20’s estimated earnings.
Paragon is clearly the high-risk, good value choice if it can generate a decent profit in FY20, which is why I continue to hold it. CSL is expensive right now, but what high-quality business isn’t?
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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 and Ramsay Health 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.