S&P/ASX 200 Index (ASX: XJO) healthcare share ResMed Inc (ASX: RMD) counts among a select basket of stable stocks that Goldman Sachs believes is set to widely outperform the benchmark.
The company is listed on multiple international exchanges. It focuses on treating a range of sleeping disorders and has seen some sizeable swings its share price over the past year, leaving it right about where it was 12 months ago.
But the ASX 200 medical stock could enjoy a far stronger year ahead.
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14% potential share price upside for ResMed
According to analysts at Goldman Sachs, stocks with stable earnings growth and share prices have historically tended to outperform when the economy is slowing. But we've yet to see that with Goldman's basket of stable stocks, which includes ResMed.
"Our economists see greater downside risks than upside risks, suggesting ample opportunities for stable stocks to outperform," the analysts said (courtesy of The Australian Financial Review.)
The broker said that despite the economic slowdown hitting developed nations, stables stocks — like ASX 200 listed ResMed — are trading at "undemanding valuations".
There are no guarantees in the world of investing. But Goldman sees a positive risk-reward trade-off with ResMed shares.
The main risk to owning stable stocks is if economic growth proves to be more resilient than we expect," the broker said. "But low valuations, poor recent performance, and elevated recession risk mean the risk/reward is asymmetric."
In its recent report profiling a range of ASX 200 healthcare stocks, Goldman noted:
We continue to express a general preference for the device/drug names over the service providers in the current environment, on the basis of: i) stronger pricing power; ii) more assured volume profiles; iii) more resilient/expanding market shares; and iv) stronger balance sheets.
As for ResMed specifically, the analysts said, "As operational pressures continue to ease we see margin/cost dynamics improving, both near and long-term."
Goldman is expecting "a sequentially stronger 2H23" for the ASX 200 medical device stock. The analysts forecast an earnings per share compound annual growth rate of 11% over the next three years "with potential upside depending on how competitive dynamics develop".
Sharper-than-expected competitor recovery and potentially new disruptive therapies are the key risks to this outlook.
Goldman has a buy rating on ResMed shares with a target price of $38.00. That's 13.8% above the current share price.
How has this ASX 200 stable stock been tracking?
As you can see in the chart below, the ResMed share price is just about flat over the past 12 months. So far in 2023, the ASX 200 stable stock has gained 7.8%.
