In the green: Here are the 5 best ASX healthcare shares of 2021

ASX healthcare shares were a strong bunch last year, with several majors and minors outperforming the primary indices.

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Returns in the ASX healthcare basket were fairly robust throughout 2021. Sector earnings saw a return to pre-COVID levels as patient and service volumes began to normalise as well.

The S&P/ASX 200 Health Care Index (ASX: XHJ) has climbed almost 9% in the past 12 months. That’s a good sign of the strength in the broad sector. It closed the year out with support after knocking some froth off its November highs.

With this in mind, we’ve picked five of the top performers in the ASX healthcare basket in 2021. Here’s the lowdown on each.

Sonic Healthcare Limited (ASX: SHL)

Shares in ASX healthcare giant Sonic Healthcare finished the last 12 months of trading almost 40% up after a fairly strong year on the chart.

In November, Sonic’s share price turned sharply and sunk to a two-month low of $38.51. This was alongside the broad index, before December saw both recover swiftly.

Investors began rewarding the company on the release of its Q1 FY22 trading update. Sonic grew revenue 5% year over year (YOY) to $3.08 billion and earnings before interest, tax, depreciation and amortisation (EBITDA) by 16% in the same time.

Given that many analysts were calling for Sonic’s revenue to decline in FY22, this was a positive surprise for investors to realise some price discovery.

Sonic also revealed it had acquired Texas-based anatomical pathology company ProPath last month. The acquisition builds in another $110 million in revenue to Sonic’s top line. It also builds on the company’s plan to integrate anatomical pathology and clinical laboratory services.

Not only that, high demand for COVID-19 testing continues to be a short-term catalyst for the company’s share price, given it is Australia’s largest provider of pathology services.

In the last month, Sonic has garnered attention once more. In that time investors have bid up the Sonic share price another 9%.

Actinogen Medical Ltd (ASX: ACW)

Shares in Australian biotech Actinogen were a substantial outperformer across the ASX healthcare universe. This small cap jumped more than 733% in 2021, but not without its fair share of volatility.

For instance, shares traded as high as 19 cents and as low as 2.2 cents last year, a substantial spread in pricing. However, the company closed out the year well after announcing a research agreement with Oxford University.

Under the agreement, Actinogen will supply its Xanamem label to the team of researchers. The research is investigating Xanamem’s therapeutic potential as a treatment in mild autonomous cortisol secretion (MACS).

Investors were late to the party following the announcement but caught on eventually. In the days afterwards, the company’s share price was rewarded.

At the same time, the broad index bounced hard off a three-month low in mid-December. The impulse of which carried through to the majority of ASX healthcare names.

As such, the company finished the year near its 52-week highs after gaining more than 33% in the final week of 2021.

Race Oncology Ltd (ASX: RAC)

Shares in precision oncology company Race Oncology held the fort across 2021. Race finished the year more than 95% in the green.

Most of Race’s share price movement came in January and February after it announced its quarterly activities report and half-yearly financial statements.

Shares shot up from a low of $1.72 to a closing high of $4.07 in a matter of two months. They managed to hold this line for the entire year.

At the time of writing, investors are paying $3.65 apiece for Race shares after a small gain of around 3% in the past five days of trading.

Race Oncology also advised that it successfully completed a share purchase plan (SPP) in December. Race raised $29.7 million after a scale back. The SPP resulted in the creation of 9.9 million new shares at $3 each.

Shortly afterwards, Race announced that its lead drug candidate, Zantrene, was shown to be protective for heart muscle fibres against cellular death that can be induced from anti-cancer drug Carfilzomib.

Compounding the findings is that Zantrene showed this ability whilst also improving its ability to kill cancer cells. As such, Race is seeking patent protection over Zantrene’s use as a heart protectant in patients receiving oncology treatment.

Both announcements have sent Race’s share price 11% higher in the last month of trading.

ResMed Inc (ASX: RMD)

Shares in medical devices player ResMed landed around 30% in the green last year. The ResMed share price offered investors a low-volatility solution to capture some upside in 2021.

At the time of writing, investors are paying $34.90 apiece for ResMed – fairly consistent with its levels since October last year.

ResMed shares traded in a narrow channel the entire way, with most growth occurring mid-year. That’s when key competitor Philips announced the voluntary recall of 3.5 million ventilation systems used for managing sleep apnoea.

Philips cited potential user risks from compounds used in the makeup of the device when recalling the ventilators.

ResMed shares popped on the news and remained top heavy for the remainder of the year. This was relevant as Philips’ decision was likely to take several months for full effect.

With its positioning as Philips’ competitor, it stands to reason that ResMed may capture additional market share and product placements with the recall.

Aside from that, it was business as usual last year for ResMed. The company had another solid year of operations that was reflected in the performance of its share price.

Australian Clinical Labs Ltd (ASX: ACL)

Shares in Australian Clinical Labs are a notable mention given their performance towards the back end of 2021.

For the majority of the time, ACL was trading in a fairly lacklustre and narrow range. It had a peak of $4.50 and a bottom of around $4.10 per share.

Yet, shares in the pathology and diagnostics provider shrugged off weakness in the broader ASX healthcare sector and held onto gains in December, before exploding to close out the year after upgrading its 1H FY22 guidance.

ACL now forecasts a range of $497.3 million to $517.2 million in revenue and net profit after tax (NPAT) of $116.3 million to $128 million.

This calls for a lift of around 14% and 35% for sales and NPAT guidance, respectively. Similarly to its peers, the company noted tailwinds from strong COVID-19 testing demand volumes as the reason for the upgrade.

As legendary investors Warren Buffet and Peter Lynch note in their writings, the market prices securities based on a combination of past earnings history and future earnings expectations.

Hence, an earnings upgrade such as ACL’s recent announcement is likely to be viewed positively by the market, inflecting positively on its share price.

Positive effects from COVID-19 testing demand is likely to remain in situ across the remainder of FY22, according to the company’s CEO Melinda McGrath.

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The author has no positions in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Australian Clinical Labs Limited, ResMed Inc., and Sonic Healthcare Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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