IF you’re hoping for healthy gains on the stock market, here’s an investment that’s almost guaranteed to grow.
Health care companies are booming, and one reason why Australia’s market is at 10-year highs despite weak performances from household names such as Telstra, AMP and the banks.
Almost three-quarters of our biggest health stocks have more than doubled their share price in a decade and several have jumped more than four times in value.
Share specialists say they should continue to benefit from an ageing, wealthier population and higher US dollar boosting their exports, but warn that after stellar price rises some appear overvalued.
Biotechnology giant CSL has been a star, rising from $40 a share in mid-2008 to almost $200 this week. It was less than $5 a share in 1999, and is relatively unknown among Australians despite being worth $90 billion — more than AMP, Telstra and Woolworths combined.
“CSL is probably the best company that we have here in Australia in terms of its innovation, management and world standing,” said Australian Stock Report chief market and trading strategist Chris Conway.
He said health care had an “underlying trend that’s irresistible” and demand for quality services would grow, particularly from Asia as people became more affluent.
“Baby Boomers are coming to the age where they require more health care, and they have the capacity to afford it.”
However, success breeds competition and it would be difficult for health stocks to deliver the same profit growth and financial returns investors enjoyed in recent years, Mr Conway said.
“Right at this very second I would hesitate about buying some of the ones that have run really hard. That’s just market timing.”
CMC Markets chief market strategist Michael McCarthy said CSL had appeared expensive for 20 years but always impressed. “Harry Hindsight’s a great forecaster,” he said.
Other surging health companies include bionic ear maker Cochlear (up 358 per cent in 10 years) and sleep disorder specialist ResMed (up 703 per cent), while $1 billion infection prevention technology company Nanosonics tops the chart with 1841 per cent growth.
Former shining star Ramsay Health Care is up 500 per cent since 2008 but down 25 per cent since 2016, a good reason for investors to diversify by owning several stocks or using managed funds or exchange traded funds.
Mr McCarthy said the overall outlook was positive but all sectors would lose value at times.
“On balance the sector still looks like a good place for Australian investors to be exposed,” he said.
“If the economy is bad, you don’t stop spending on that heart operation you need.”
Midsec director adviser David Middleton said stocks such as CSL were now “priced for perfection”.
“If ever the earnings growth slows down it’s not going to be a pleasant thing for shareholders,” he said.
“It feels as if you are missing out when they become more expensive but they will come back again. They always do. We have been waiting for a long time for Ramsay to go from ridiculously expensive to normally expensive.”
HEALTHY AND WEALTHY
Share price moves past 10 years
Nanosonics up 1841%
Sirtex Medical up 877%
ResMed up 703%
Fisher & Paykel Health Care up 669%
Ramsay Health Care up 506%
CSL up 402%
Cochlear up 358%
Mayne Pharma up 207%
Ansell up 134%
Australian Pharmaceutical Industries up 94%
Sonic Healthcare up 70%
Estia Health down 52% since 2015
Sigma Pharmaceuticals down 30%
Primary Health Care down 29%
Healthscope down 28% since 2016
Anthony Keane, News Corp Australia Network