Shares of selected Australian healthcare companies are going gangbusters.
Indeed, the S&P/ASX 200 Health Care (ASX: XHJ) (Index: ^AXHJ) index has soared almost 42% in the past year, whilst the S&P/ASX200 (Index: ^AXJO) (ASX: XJO) is up just 11%.
With the Australian market looking richly priced against its historical averages, there are many reasons to hold shares in successful healthcare companies.
The first is their defensive earnings base. Biotechnology and healthcare stocks generally produce a product which customers are unlikely to forgo even in the direst financial conditions.
Another reason to hold them is for their growth potential. Once a company has a proven product, commercial manufacturing operations and a strong marketing team in place, profit growth can go on for many years.
A competitive advantage is also a must have for long-term investors. With many healthcare products being protected by patents, companies which have taken the time and money to develop innovative products can be protected from competition.
Finally, many healthcare companies have the ability to scale their operations significantly. This means for every extra dollar of revenue they gain, the cost per unit produced drops, thus increasing profits substantially.
3 healthcare stocks going gangbusters
- ResMed Inc. (CHESS) (ASX: RMD) is a leading manufacturer of devices for sufferers of sleep apnoea and selected respiratory disorders. ResMed shares have soared 107% in the past year as investors reward its continued earnings growth. With a large addressable market and industry-leading products, there could be more good times in store for investors.
- Cochlear Limited (ASX: COH) has risen 60% in the past 12 months, after being sold-down heavily throughout 2013. A global leader in implantable hearing devices, Cochlear is a diversified company with hundreds of thousands of people currently using its products.
- Capitol Health Ltd (ASX: CAJ) is a junior healthcare company offering medical diagnostic imaging services. Up 70% in the past year, and 1,600% over the last five, shareholders have been rewarded for their patience. Whilst future growth isn't likely to be as impressive, the company continues to offer growth potential for long-term investors with both acquisitive and organic strategies available.
Are they a buy?
Although all of the above stocks have run hard in the past year (all of them have posted new all-time highs) they appear likely to continue growing over the long term. However, personally, I'd prefer to hold off buying and wait for the share prices to pull back into a more compelling valuation range before starting a new position.
