When looking for great long-term investments, it’s a good idea to start by looking at the big picture and asking yourself which sectors of the ASX you think will have a long-term advantage. I believe applying a macro-economic perspective to identify industry or sector tail winds before diving deeper into specific companies is a great strategy.
One sector I believe to have a long-term tail wind is the S&P/ASX 200 Healthcare Index (ASX: XHJ), which has outperformed the S&P/ASX 200 (INDEXASX: XJO) over the past 12 months. I think it can continue this outperformance over the next 5 years or longer, thanks to ageing demographics, population growth and increasing regulation and standards.
Here are 2 ASX healthcare shares with long-term growth profiles that I think are strong candidates for market-beating positions over the next 5 years.
ResMed Inc (ASX: RMD)
ResMed started out life in Australia and now has its headquarters in the United States (US) where it predominately develops devices for respiratory conditions such as sleep apnoea.
I like ResMed for its strong position in a huge global market, with the company selling its products in the US, Europe and Asia. It is estimated that there are around a billion people worldwide who suffer from sleep apnoea, with only 20% of these sufferers diagnosed. This number can only increase as awareness of the issue increases, which should help ResMed continue its strong growth trajectory into the future.
ResMed is also increasing its bottom line through margin increases, boasting increases to its gross margin for the last 3 consecutive quarters.
This makes ResMed shares one of my favourite buy and hold options on the ASX right now. Additionally, it also pays a small quarterly dividend of 0.7%.
Medical Developments International Ltd (ASX: MVP)
Medical Developments is far smaller in size than ResMed. It has a strong history selling its Penthrox products safely in Australia since 1975. Penthrox is a widely used, fast and non-addictive pain relief drug, commonly known as the ‘green whistle’.
From 2002, Medical Developments began expanding into overseas markets and has seen rapid market growth, but there are still a few huge players in the approvals process – namely, the US, China and Russia. The Chinese Medical Product Administration has now approved the opening of Medical Developments’ investigative new drug application, which is a critical step to gain sales approval in China. Here, the company hopes to gain approval for the use of Penthrox with procedural and trauma pain. In addition, Medical Developments expects the review process and final approvals for Russia to be within 15 months, while also noting that it hopes for FDA approval in the US around mid 2022.
Thanks to its recent expansion into new markets and its growth in existing markets, Medical Developments managed to grow global sales by 47% in FY19, adding almost 400 new customers. This strong growth and pipeline of approvals to cultivate future growth makes me think that it could be a strong winner over the next 5 years.
When determining if a share will perform well, it’s important to consider if you think the company’s revenue will be significantly higher in 5 or 10 years. Both of these companies are showing strong sales growth in huge addressable markets and are leaders in their fields, which is why I expect both to have significantly higher revenue over this time frame.
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Motley Fool contributor Michael Tonon owns shares of ResMed Inc. The Motley Fool Australia owns shares of and has recommended Medical Developments International Limited. The Motley Fool Australia has recommended 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.