Rudi’s View: Re-Opening Opportunities In Healthcare

rudi-views
Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Nov 17 2022

In this week's Weekly Insights:

-Re-Opening Opportunities In Healthcare
-Conviction Calls
-Research To Download
-FNArena Talks
-AIA Investor Day In Sydney


By Rudi Filapek-Vandyck, Editor FNArena

Re-Opening Opportunities In Healthcare

US midterms, crypto failures, China re-opening and US CPI have pushed corporate profits into the background recently, but investors would be wise to not let their attention weaken.

Some important signals are there for everyone to see, both locally and internationally.

In the US, the Q3 reporting season, virtually finished, is accumulating into the weakest since Q3 2020; two years ago. The problem, thus far, is not so much with sales and revenues, but with a peak in profit margins.

Aggregate top line growth is still recording 10% growth year-on-year but at the bottom line growth has fallen to no more than 2%. And the outlook, it appears, remains sombre with forecasts for the quarters ahead worse or at best of similar magnitude.

Many forecasters worry the US economy might be in recession by early next year and corporate profits will increasingly start to reflect this downturn challenge.

Wilsons, on Monday, made the following prediction:

"A US downturn (even if it does prove to be a recessionary downturn) is likely to be mild by historical standards, but would likely still send the US earnings cycle into contraction mode."

Locally, the majority of market updates have failed to trigger a positive share price response and quite a number of recent updates has seen share prices weaken noticeably, including for Xero ((XRO)), News Corp ((NWS)), Sims ((SGM)) and James Hardie ((JHX)) -  and Elders ((ELD)) on Monday.

Admittedly, the sharp Buy-everything short-covering rally that has ensued post the US CPI release last week has seen these share prices in strong recovery mode since, but that would be to ignore the underlying message that corporate Australia, yet again, is polarising around profit growth momentum.

Within this context, Friday's Q1 trading update by private hospital operator Ramsay Health Care ((RHC)) might well prove important on multiple levels:

1. As far as Ramsay's Australian business is concerned, the re-opening momentum is strong and positive

2. The business continues to struggle with multiple headwinds in Europe

Those who've been following Ramsay Health Care know the business has been struggling to keep operational momentum positive since 2016 when, not by coincidence, the share price peaked well above $80.

And while many an expert/stock picker has nominated the shares for a post-covid opportunity, it has been a two steps forward, one step backwards, difficult trajectory for the company over the past two years.

Analysts are quite divided about Ramsay's future return profile: should one emphasise the positives locally or worry about the ongoing headwinds internationally?

Ramsay's market update also yet again highlighted sections of the healthcare sector on the ASX are now beneficiaries of the re-opening of societies - a fact the share market seems to have all but forgotten about when short-term momentum is all about banks, financials, cyclicals and commodities.

If those worries about international recessions next year return front of investor minds, it is likely All-Weather Performers in the healthcare sector will quickly return on investor radars - in particular those that enjoy re-opening benefits and recession-proof characteristics.

A brief run through the key constituents of the ASX-listed healthcare sector.



CSL

Plasma and vaccines company CSL ((CSL)) is the Grand Dame of Australian biotech and healthcare, or, if we want to choose a masculine label, the Emperor among Kings.

The share price hasn't progressed for its third year in succession (net), and on that basis, it would be easy to conclude the best years are now in the past, a la Ramsay Health Care. After all, doesn't the share market always know best?

Such assessment ignores the fact the global recovery in plasma collection is solidifying and CSL's R&D pipeline looks poised for a number of positive developments, on top of the recently acquired Vifor.


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