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2 leading ASX healthcare shares that should be on your radar

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).

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Phil Harpur owns shares of Cochlear Ltd., CSL Ltd., and ResMed Inc. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. and CSL Ltd. The Motley Fool Australia has recommended Cochlear Ltd., Ramsay Health Care Limited, and ResMed Inc. 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.