Healthcare stocks are often labelled as "underrepresented" on the Australian stock market.
That's because compared to other sectors like financials (big banks) and resources (mining and energy), healthcare makes up a much smaller portion of the ASX's total market capitalisation.
For example, financials and materials can account for 50–60% of the ASX 200, while healthcare often contributes around 10–12%, depending on market conditions.
Furthermore, the healthcare sector on the ASX is dominated by a few major companies:
- CSL Ltd (ASX: CSL) – one of Australia's largest companies, and by far the biggest healthcare stock.
- Cochlear Ltd (ASX: COH), ResMed Inc (ASX: RMD), and Sigma Healthcare Ltd (ASX: SIG) are also prominent.
This means the sector's performance is heavily tied to these few holdings, making it less diversified than in other markets like the US.
However, that also means there are hundreds of growth stocks with the potential to bring large returns.
Let's look at two that are tipped for growth according to broker Bell Potter.
Image source: Getty Images
Clinuvel Pharmaceuticals Ltd (ASX: CUV)
This biopharmaceutical company develops and commercialises treatments for rare genetic and skin disorders, especially those related to light sensitivity.
This healthcare stock has seen its share price fall 34.53% over the last year.
However, Bell Potter sees opportunity in this healthcare stock.
The broker maintains its "buy" recommendation and $21.45.
At the time of writing, shares are trading at $9.99 each, which indicates an upside of approximately 117.7%.
The company is optimistic thanks to the company's lean, vertically integrated business model.
Furthermore, the broker noted that the company commercialises Scenesse, the only approved drug in the US and EU for patients with EPP (Erythropoietic protoporphyria).
Cyclopharm Ltd (ASX: CYC)
Cyclopharm Ltd. is a radiopharmaceutical company, which engages in diagnostic imaging in lung health. It manufactures and sells medical devices and pharmaceutical products.
At the time of writing, CYC shares are down 42.86% in the past year.
This significant drop might mean it's been oversold, with Bell Potter placing a "buy" recommendation and $2.20 price target.
This indicates a 134.0% upside from its current price of $0.94.
A report from the broker last month highlighted the company has experienced slower than expected growth.
However, the underlying U.S. market opportunity remains significant according to Bell Potter.
Investors should be also aware that growth stocks can come with increased upside, but simultaneously more volatility.
