It might be hard to believe after a crazy volatile 2022, but the S&P/ASX 200 Index (ASX: XJO) is still well up since the start of the COVID-19 pandemic.
However, according to Wilsons equity strategist Rob Crookston, there is one usually reliable sector that's just gone sideways over that time.
"Since April 2020, the ASX 200 is up 49% [but] the healthcare sector is flat," he said in a memo to clients.
"We think the next 12 months will be very different from the last, with vital signs improving for the sector."
As such, the Wilsons team is now overweight on ASX healthcare shares.
"Healthcare offers a number of high-quality companies, with pricing power," said Crookston.
"Earnings look to be at the start of an upgrade cycle. Valuations look reasonable relative to pre-COVID – the sector could rerate on easing inflation."
He added healthcare is also the perfect cure for economic slowdowns.
"CY23 could continue to be challenging due to inflation, rate hikes and worries about a recession," said Crookston.
"Against this backdrop, we think healthcare stocks — which have historically been reliable defensives — can provide a degree of downside protection amidst volatile conditions."
The memo mentioned three ASX shares that Wilsons are currently targeting:
Dominant player
The team at Wilsons rates Resmed CDI (ASX: RMD) as a buy for its strong position in the market.
"RedMed is the dominant player within the CPAP market, which in our view reflects the superiority of its offering and a history of strong execution from management," said Crookston.
"The global CPAP market remains significantly under-penetrated. This under-penetration drives typical organic 'system growth' of 6-8% pa, which is structurally above healthcare at 2% to 3% pa."
After a wild up-and-down year, the ResMed share price is now just 3.6% down from where it started 2022.
Larger collection network and higher donor numbers
CSL Limited (ASX: CSL) has multiple tailwinds going for it, reckons Wilsons analysts.
"The market for immunoglobulin products is supply constrained, while underlying demand is highly defensive given IG is used to treat patients with a range of serious immunologic and neurologic diseases," said Crookston.
"CSL was impacted by lower plasma collections during COVID-19… Collection volumes are recovering and now exceed pre-pandemic levels as fears of the virus have faded and stimulus cheques have dried up."
The biotechnology giant isn't just relying on external themes though. Crookston observed that CSL has "invested heavily" in its immunoglobulin collection infrastructure.
"The new Rika Plasma Donation System will allow for the collection of more plasma in less time, increasing throughput by 30%," he said.
"We expect CSL's larger collection network, in combination with higher donor numbers and operational efficiencies from new tech, to drive higher IG volumes and margins over the medium-term."
CSL shares are flat on the year and still have not surpassed the pre-COVID high.
Pre-revenue phase now finished
The third ASX share Wilsons mentioned is less mature than the other two, but perhaps the most exciting in its potential — Telix Pharmaceuticals Ltd (ASX: TLX).
In April this year, the company commercially launched its first-ever approved product, the prostate cancer diagnostic tool Illuccix.
"With proof of product sales now demonstrated, Telix has moved out of the pre-revenue biotech space and into a commercial business with a capacity to meet, and potentially exceed revenue forecasts."
The Telix share price is down 12.5% year to date but 49% higher since 28 September.
