I feel that healthcare is an excellent ASX market segment to invest in, particularly with our ageing population driving an ever-increasing demand for healthcare services.
In my opinion, both ResMed Inc (ASX: RMD) and Cochlear Limited (ASX: COH) are good share picks within this segment, due to their technological innovation, entrenched market positions, and growing international exposure.
ResMed
ResMed is an amazing Aussie success story, growing from a tiny backyard Australian operation to a large US-based company employing more than 7,500 people worldwide. ResMed has also had an excellent recent run on the ASX, with its shares rising from $13.60 mid last April to close yesterday's trade at $23.04, an incredible 69% gain.
It provides end-to-end connected health solutions for the treatment of sleep apnea and other respiratory conditions that can be used in the home, via software-as-a-service (SaaS) solutions, thus reducing the financial and resource burden of in-hospital treatment. In terms of ResMed's potential market, it is estimated that there are one billion people impacted by sleep apnoea worldwide, with more than 80% undiagnosed cased globally. This number is due to increase significantly over the next decade.
ResMed performed very strongly during FY19, with revenues rising by 11%. Strong growth is continuing in FY20, with revenues rising by 16% during the first quarter. ResMed's gross margin has been steadily rising, indicating increasing economies of scale, and increasing its barrier to entry of new competitors.
ResMed has a price-to-earnings (P/E) ratio of around 47.4 (at the time of writing), which is on the high side but reasonable for a high quality ASX growth share with a proven track record, in my opinion.
Cochlear
Cochlear is a global manufacturer and distributor of cochlear implantable devices for the hearing impaired. As the proportion of the global population over 65 continues to grow, there will be a rising demand for hearing products and solutions over the next few decades.
In November last year, Cochlear received approval from the U.S. Food and Drug Administration (FDA) for its Osia 2 system. This ground-breaking new product bypasses damaged areas of the natural hearing system. With this green light given, Cochlear intends to commence commercial rollout of Osia 2 in the United States (US) in the second half of 2020, which could lead to a significant revenue boost. Cochlear is also making good progress in constructing a new manufacturing facility in China.
In its most recent guidance, Cochlear revealed that it expects to deliver a reported net profit of $290–300 million during FY20, an increase of 9–13% if achieved. Cochlear has a P/E ratio of around 48.6.
In my view, Cochlear is in an ideal position to combat any future competition due to its highly entrenched market position, strong global brand and market-leading position in an industry that has relatively high barriers to entry.
Foolish takeaway
I feel that both ResMed and Cochlear have long run-ways ahead of them for strong growth over the next decade, despite strong recent rises on the ASX.
Another 2 ASX healthcare shares your might want to also consider are CSL Limited (ASX: CSL), and Ramsay Health Care Limited (ASX: RHC).
