There are a number of sectors I wouldn’t really want to invest in. Retail is very competitive, resource businesses are cyclical, banks aren’t my cup of tea and so on. Healthcare is one of the sectors I find most interesting.
Demand for healthcare services is generally consistent throughout the year. We don’t choose when to get sick in good or bad economic conditions. We also generally value our health above anything else, so we’ll pay what it takes to remain alive and healthy.
That’s why these three shares are interesting ideas to me:
CSL Limited (ASX: CSL)
CSL is perhaps the highest quality ASX blue chip. It is consistently growing its profit, its earnings base is global and its portfolio of products keeps expanding.
One of the main reasons why CSL is consistently a strong performer is that it invests a healthy amount of money into research & development.
In FY19 CSL spent US$832 million on research and development, an increase of 21% from the prior year – up US$150 million in dollar terms.
CSL has forecast further profit growth despite a shift of model with its Chinese model.
Ramsay Health Care Limited (ASX: RHC)
The private hospital operator has gone on a bit of a rollercoaster over the past couple of years. Private health insurance affordability is troubling for younger policyholders, but there is growing healthcare demand for non-urgent operations because of the ageing population in the western world.
The European Capio acquisition is useful for earnings diversification, but I liked reading recently that Ramsay is looking for bolt-on acquisitions to expand its out-of-hospital care.
If Ramsay steadily becomes just a generalised healthcare business rather than just private hospitals then I think that would future-proof the business further and could make it one for hold for a long time to come.
Paragon Care Ltd (ASX: PGC)
Another general way to play the healthcare sector is Paragon. It’s a small cap that supplies various equipment, devices, beds etc. to healthcare clients like hospitals (public & private), aged care centres and others.
The company has certainly gone through a rough patch recently. But it has divested an unprofitable segment, leaving a promising group of businesses. Paragon needs to focus on profit margin improvement, efficiencies and growing dividends which could see its share price rise back over the next 12 to 18 months.
Paragon is the only one of the three in my portfolio due to its diverse product range, its online platform and exposure to growing healthcare demand – it looks cheap. But CSL and Ramsay Health Care could be the higher-quality choices.