A senior account manager from We Financial, Barry Cena, explains that on the surface, healthcare shares in the ASX 200 are underperforming. But a clear view of the bigger picture shows that they’ve grown quite fast over the long term. In the past year, the ASX 200 Index went up by a little over 7 per cent. Meanwhile, the ASX 200 Health Care Index, which is represented by ASX: XHJ, is down by 4.8 per cent at the moment.
But a quick look at the data shows that in the last five years, ASX healthcare stocks have gone up by 25.6 per cent. In contrast, the benchmark used to measure performance only went up by 12.8 per cent. Even though ASX healthcare shares are a positive addition to investors’ portfolios, there are a few things to look out for.
Buying Good Healthcare Stocks
According to Barry Cena, healthcare businesses that have shares worth buying typically have some key features. They usually have competitive positions and wide economic moats. This means they have an advantage that makes it difficult for competitors to take away their market share.
Another factor is that the business should operate in a concentrated market with high barriers to entry. This means that a few firms dominate the overall market, and high barriers to entry prevent future competition.
Common examples of such barriers include intellectual property, regulation, patents, research, and, most importantly, scale. When a company has overcome these barriers, it can enforce pricing power.
Fortunately, investors shouldn’t worry about having to buy shares of the same handful of companies. In the last couple of years, the ASX 200 has listed a number of innovative healthcare companies that have developed impressive technologies. These include the HPV vaccine, obstructive sleep apnoea devices, and the cochlear implant.
Investors should also make sure that the business has a record of generating better returns on invested capital. Similarly, it should align with a sustainable three-to-five-year plan.
Common ASX Healthcare Shares
A good example of a steady ASX healthcare share is that of CSL Limited and Ramsay Health Care Ltd, which are represented by ASX: CSL and ASX: RHC, respectively. Here, CSL Limited is a strong candidate because it offers an impressive range of products.
Investors who are interested in getting some exposure to the insurance sector can consider options such as Suncorp Group Limited, which is represented as ASX: SUN. Then, there are also smaller health insurers like NIB Holdings Limited and Medibank Private Ltd, ASX: NHF and ASX: MPL, respectively.
Biotech is also an interesting area that shows immense potential. In this case, Immutep Ltd, represented by ASX: IMM, offers impressive growth prospects. The company’s immunotherapies are helpful for strengthening patients’ immune systems, helping them fight autoimmune diseases more effectively.
To conclude, senior account manager Barry Cena, at We Financial, outlines the key factors investors should look for when choosing which healthcare share to add to their portfolios. It should have a competitive advantage, operate in a concentrated market, have a history of providing returns, and be able to stick to a three-to-five-year plan.
