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The listed healthcare and biotechnology sector is diverse and appeals to speculators and defensive investors. Junior biotechnology companies can rapidly burn cash in the absence of earnings during drug stgelopment stages. However, the rewards can be substantial if a junior bio-tech makes a medical breakthrough.

Sharemarket analyst Michael Heffernan, of Austock, has stuck to the big end of town, choosing companies with a history of earnings to reduce risk. Heffernan’s stock list is aimed at conservative investors prepared to take some risk by investing in the sharemarket, and who have reasonable expectations about company performance and potential returns. He says the companies he has chosen offer a bright outlook, but investors shouldn’t expect to make overnight fortunes.

Ansell (ANN)

Chart: Share price over the year to 27/02/2011 versus ASX200 (XJO)

This rubber glove and condom maker recently posted a NPAT (net profit after tax) of $US61 million for the six months to December 31, 2010 – a 12 per cent increase on the previous corresponding period. The interim dividend rose by 8 per cent to A14 cents a share.  Heffernan describes the result as “impressive” upon the company advising the past six months were challenging in response to substantial increases in raw material costs and adverse foreign exchange movements. Heffernan says the company expects further raw material cost increases, but these should be more than offset by strong global momentum in industrial businesses.

CSL Limited (CSL)

Chart: Share price over the year to 27/02/2011 versus ASX200 (XJO)

Despite a fall of almost 19 per cent in NPAT to $500 million for the six months to January 31, 2010, Heffernan sees this global blood products maker and vaccines producer as offering a solid long-term opportunity. “The prospect of a stronger US dollar is likely to be positive for CSL’s profitability,” he says. CSL says the latest result included an unfavourable foreign exchange impact of $47 million. Heffernan says the company is expecting a better second half and has cash and cash equivalents totalling $719 million. “The future looks promising for CSL, as it always has its foot on the research and stgelopment accelerator,” he says.

Ramsay Health Care (RHC)

Chart: Share price over the year to 27/02/2011 versus ASX200 (XJO)

The only major Australian listed private hospital operator has grown via acquisitions and consolidation. It now has interests in the United Kingdom, France and Indonesia. Heffernan says a full-year 2011 upgrade suggests a profit increase of between 22 and 24 per cent. He says the public hospital system is under immense pressure and governments across Australia will have to increasingly use private hospitals. “This would seem to underwrite the future profitability of Ramsay Health Care,” he says.

Cochlear (COH)

Chart: Share price over the year to 27/02/2011 versus ASX200 (XJO)

This bionic ear maker posted a NPAT of $87.2 million for the six months to December 31, a 16 per cent increase. It reduced net debt to $17.3 million. Generating free cash flow of $67 million adds to its appeal. Its Nucleus 5 System, released less than two years ago, sells in more than 80 countries and the company strategy involves bringing new enhancements to the market. Heffernan says the company is strategically positioned for long-term sustainable growth.

ResMed (RMD)

Chart: Share price over the year to 27/02/2011 versus ASX200 (XJO)

ResMed makes and distributes medical equipment for sleeping disorders, and Heffernan says it’s been a strong sharemarket performer since listing more than 10 years ago. It reported a NPAT of $US115.2 million for the six months to December 31, 2010, a 31 per cent increase on the previous corresponding period. Heffernan says its sharemarket fundamentals are solid, with a favourable price/earnings ratio in the low teens and a strong return on equity. He says in the absence of dividends, super funds may find the stock unattractive. “However, its growth profile remains robust and it has little or no debt,” he says.

 

 COMPANYCODE SHARE PRICE
 Ansell ANN $13.66
 CSL Limited CSL $35.84
 Ramsay Health Care RHC $17.38
 Cochlear COH $76.90
 ResMed RMD $3.13

 * Share price as at market close Friday 25 Feb. 2011

 

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