ASX healthcare shares have had a mixed 2023 to date. The share price movements this year have been disappointing for a number of names. Is the 2024 outlook more positive?
Since the start of 2023:
The CSL Limited (ASX: CSL) share price is down 5%.
The Resmed (ASX: RMD) share price is down 19%.
The Ramsay Health Care Ltd (ASX: RHC) share price is down 23%.
The Sonic Healthcare Ltd (ASX: SHL) share price is up 5%.
The Pro Medicus Ltd (ASX: PME) share price is up 66%.
The Cochlear Limited (ASX: COH) share price is up 43%.
Lower starting share prices for 2024 may be helpful for delivering a positive return.
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What are the positives for the ASX healthcare share sector?
Each company has its own business plans and growth initiatives, so I'm not going to delve into each one individually.
There are a few tailwinds for the sector.
First, the population of countries like Australia, the US, the UK and so on are increasing. More potential patients is a helpful thing for revenue and earnings. The Australian population rose 563,200 people in the 12 months to 31 March 2023.
Second, there is a growing ageing population in Australia and other Western countries. An older population is probably more likely to utilise healthcare services.
Third, many of the companies I referred to have global growth ambitions. As time goes on they are increasing their scale, lengthening their growth runways by expanding in new countries and launching new products or services.
Fourth, COVID-19's effects are now firmly in the rearview mirror. Any healthcare treatment that was delayed can now be enacted, and a normal operating environment can occur in their relevant markets.
What are the negatives?
To varying degrees, investors seem fearful that weight-loss drugs like Ozempic may impact demand for products from businesses like ResMed and CSL. Those fears may be overdone, however, the share prices are down nonetheless.
Also, I think the higher interest rates are a negative for ASX healthcare share valuations.
Healthcare businesses are seen as a defensive industry, and investors can now get a very satisfactory return from the 'safe' asset class of bonds, which I think partly explains why the valuations of healthcare businesses have fallen this year. Of course, if interest rates started falling in 2024 then the share prices could get a boost, though 'the market' already seems to be somewhat expecting cuts.
Finally, costs are higher because of inflation, though that headwind may be lessening.
Where could share prices end up?
It's difficult to know where share prices will go in just one year, as the overall market can have a significant influence on what happens. Plus, there were some major moves this year, so it's tricky to say what will happen next.
Even so, let's look at what a broker thinks, as their guess is as good as any. Of the ones it has a rating on:
UBS has a buy rating on CSL shares with a price target of $340, suggesting a possible rise of 27% over the next year.
UBS has a neutral rating on Cochlear shares, with a price target of $260. That's suggesting a drop of around 10% in 12 months.
UBS has a buy rating on Sonic Healthcare shares, with a price target of $34.10. That implies a possible rise of close to 9% in the next year.
Remember though, price targets are not guarantees, just predictions.
