Supermarket giant Woolworths Group Ltd (ASX: WOW) has had a loyal following among investors in recent years.
Despite dipping more than 6% this year with the rest of the market, the stock has grown 64% over the past 5 years. This is all while giving out a handy 2.6% in dividend yield.
Groceries are always in demand, regardless of economic cycles. And Woolworths, as market leader, has enviable pricing power to cancel out headwinds like inflation and rising interest rates.
But, believe it or not, there is a growth stock that's rarely talked about in the same sentence as Woolies, that is comparably better.
That's the opinion of Firetrail portfolio manager Blake Henricks who has high conviction on Resmed CDI (ASX: RMD) shares.
"It's a world leader in sleep apnoea," he told a Pinnacle webinar.
"The reason it's got such an attractive business is there's around 400 million people who suffer from a sleep disorder or sleep apnoea. And today, Resmed has 16 million customers."
Image source: Getty Images
Resmed's biggest rival stumbles
The Firetrail team's conviction in Resmed ramped up in June last year when its major competitor Koninklijke Philips NV (AMS: PHIA) was forced to recall its sleep breathing machines.
"They're going to be replacing and repairing 5 million devices," said Henricks.
"We believe that these market share opportunities that Resmed's been offered up because of the product recall are material — and will last multiple years."
The recall is significant because Philips is the second biggest player in the market, immediately behind the leader Resmed.
And the impact of Philips' misfortune isn't just a finger-in-the-air guess. Henricks' team had a precedent in mind.
"We've seen this movie before. Cochlear Limited (ASX: COH) had a major recall back in 2011," he said.
"Subsequently, their market share dropped the next 8 years."
Resmed vs Woolworths: I know which one I'd choose
The Resmed share price has dropped almost 13% over the past 6 months, but Henricks puts this down to macroeconomic forces.
While the world worries about rising interest rates and wars in Europe, the future potential for the medical device business just cannot be denied, according to Henricks.
"When we compare it to other growth stocks, quality stocks or defensive stocks — of which Resmed is all 3 — we now see an amazing opportunity to buy Resmed at a major discount."
Henricks added that investors can currently buy Resmed shares for less than 30 times PE [ratio], based on projected financial year 2023 earnings.
"It's actually not too far away from Woolworths," he said.
"When we compare the two, Resmed is the clear winner… Resmed is a standout opportunity — it's got a low valuation and very high growth."
Resmed shares closed Tuesday at $34.41 each.
