I particularly like the ASX healthcare segment due to Australia’s growing and ageing population, which is driving an ever-increasing demand for healthcare services.
CSL Limited (ASX: CSL), ResMed Inc (ASX: RMD) and Cochlear Limited (ASX: COH) are my top 3 share picks within this segment, due to their proven business models, technological innovation, and growing international exposure.
CSL has become a global market leader in blood plasma research and disease treatment, reaching more than 60 countries. Over the past few decades, CSL has evolved from a small federal government spin off to sit as the second-largest company on the ASX.
Key to CSL’s astronomical growth is its high investment in research and development to create new products, and the fact that its earnings base is essentially shielded from any business cycle downturn. Over the last 3 years, its earnings growth has averaged 16.5% annually.
CSL has invested more than US$3 billion in research and development over the last 5 years. This creates a pipeline of new products and helps extend its large moat to protect against market competition.
CSL is well positioned to continue to deliver strong earnings growth over the next 5 years, driven by a continued fast-growing plasma collection network, and rising global demand for immunoglobulin products.
Despite holding a very small niche in the healthcare market, Cochlear has managed to raised its profile over the last decade or two to become an Australian household name. Cochlear, in case you are not aware, is a global manufacturer and distributor of cochlear implantable devices for the hearing impaired.
It produces cutting edge, industry-leading products driven by a high level of investment in research and development.
As the proportion of the global population over 65 continues to grow, there has been a rising demand for hearing products and solutions. This demand is set to continue for the next few decades.
In its most recent FY20 guidance, Cochlear revealed that it expects to deliver a reported net profit of $290 million to $300 million during FY20. If achieved, this would be a 9% to 13% increase in underlying net profit.
Cochlear recently received approval in the US for 2 exciting new products, which will ensure it’s well positioned to boost revenues during 2020 and 2021.
While both CSL and Cochlear have become Australian household names, ResMed is another ASX healthcare share that is equally as successful, in my opinion, albeit lesser known.
ResMed is a designer and manufacturer of devices and cloud-based software solutions for the treatment of sleep apnoea and other chronic respiratory illnesses.
It has been an amazing Australian success story, growing from a small Australian operation to a large US-based company employing more than 7,500 people worldwide.
The potential global market for sleep apnea is huge and ResMed is cleverly leveraging big data, artificial intelligence and machine learning by utilising the data it collects from its patients.
ResMed’s goal is to improve 250 million lives in out-of-hospital healthcare by 2025.
ResMed performed very strongly during FY19, with revenues rising by 11%. This strong growth is continuing in FY20, with revenues rising by 16% during the first quarter.
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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. 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.