The Best Healthcare Stocks to Buy in 2023

The ASX healthcare sector offers Aussie investors opportunities covering both ends of stock market investing – the safety of established companies offering high-demand medical treatments and the seductive qualities of speculative startups researching revolutionary therapies.

The mature Australian health stocks offer investors a low-risk opportunity for long-term gains due to their defensive qualities and the size and penetration of the total addressable market for what they offer.

At the opposite pole lie the high-risk, high-reward companies often treading unchartered waters. These are the stocks that get investors’ blood pumping at the prospect of “ten bagger’ returns popularised by the legendary US investor Peter Lynch.

The established and the speculative companies have powerful demographic tailwinds that bode well for their future performance. All over the world, the population is ageing as the former largest generation the world has ever seen – the baby boomers – continue to retire. Perhaps of greater significance is the dramatic increase in human life span, as reports of seniors older than one hundred years have become common.

The total addressable market for whatever treatment a company offers, or plans to offer, is a critical factor often overlooked by investors. An established company operating in a saturated market is less desirable than one operating in an expanding market.

This consideration is especially relevant for speculative stocks, companies working on treatments affecting a small percentage of the population.

Speculative biotech and life sciences stocks can reward investors with rapidly rising stock prices as positive news on what the company is doing continues to dominate financial websites. The crown jewel announcements are positive news on a series of clinical trials leading to approval for market distribution. However, if the trial news is moderately positive or negative, the share price gains can evaporate in a heartbeat.

Some market experts suggest investors lean toward risk aversion, not risk tolerance. If you are asking yourself, what are the best health stocks asx to buy in 2023? The answer for most investors would appear to be the established players in the sector, especially given the uncertain economic conditions in 2023.

Here are five of the best healthcare stocks to buy in 2023.

CSL Limited (CSL)

CSL offers two vital medical products – blood plasma and vaccines. The global market for blood plasma is expected to grow at a compound annual growth rate (CAGR)  of 10.3% through 2030. The global market for vaccines in 2021 was $USD 61.04 billion dollars, with forecasted growth to 2028 to reach USD$ 125.4 billion dollars,  a CAGR of 10.3%.

The company has two business segments – CSL Behring and Seqirus. CSL Behring provides blood plasma treatments, while Seqirus is one of the world’s largest providers of influenza vaccines. CSL invests heavily in the research and development (R&D) of medical treatments to support the company’s future growth.

Over ten years, the CSL share price has risen 388.8%, from $61.58 per share on 6 January 2013 to $302.05 on 1 May 2023.

Source: ASX 1/5 2023

CSL is a prolific dividend payer, with a five-year average of $2.76 per share. The company’s five-year average P/E (price-to-earnings ratio) is 40.49, while the five-year average price-to-forward earnings ratio is 48.58. The forward P/E uses forecasted earnings over the coming twelve months in its calculation.

The COVID-19 pandemic posed challenges to CSL, hindering its plasma collection procedures. Despite that, the company saw increasing revenues and profit stability over the last four fiscal years. The company is an analyst favourite, with two analysts at STRONG BUY, seven at BUY, and one each at HOLD and SELL.

CSL Financial Performance

Source: ASX 1/5 2023

Cochlear Limited (ASX: COH)

Cochlear Ltd provides cochlear implants, bone-anchored hearing aids, and a variety of sound processors associated with both. While cochlear hearing implants are traditionally associated with paediatric use, the company also focuses on the senior citizen market, consistent with the global trend toward older population demographics.

Cochlear controls 60% of the global market, with 80% of the company’s revenues coming from developed countries, opening the door to emerging markets as a growth opportunity. Cochlear products are upgradeable, and the company’s R&D operation consistently upgrades its existing line alongside developing new products.

The global cochlear implant market was $USD1.6 billion dollars in FY 2022, up dramatically from the prior year’s $USD$452 million when the pandemic curtailed non-emergency medical procedures. A global CAGR of 8.41% is expected between 2023 and 2030, with 9.2% expected in the US. The World Health Organisation estimates more than five million people worldwide will experience hearing loss by 2050.

Over the last decade, Cochlear’s share price has risen from $61.78 on 1 January 2013 to $245.59 as of 1 May 2023, an increase of 297.5%.

Source: ASX 1/5 2023

Year to date, the stock price is up 20.3%, reaching a 52-week high of $253.36 intraday on 24 April. The company’s financial performance took a hit but returned to profit and revenue growth in FY 2021, although profit tailed off in FY 2022 while remaining positive.

Cochlear Financial Performance

Source: ASX 1/5 2023

Analysts appear decidedly unenthusiastic about Cochlear, with ten HOLDS, four UNDERPERFORMS, and one SELL. US-based Goldman Sachs may not be included in the Yahoo Finance Australia broker recommendation count since Goldman has Cochlear as a BUY with a price target of $265 and forecasts exceeding Cochlear’s own guidance.

ResMed Inc. (ASX: RMD)

ResMed is a US-based company that began trading on the ASX in 1999. The company has been in the business of sleep technology for 30 years, beginning with the CPAP (Continuous Positive Airway Pressure) machine – a device to help people breathe and sleep better.

The company has grown to become a global leader in respiratory and sleep therapy, offering multiple CPAP models to fit a range of customer preferences, along with the associated equipment and supplies.

The market for sleep apnoea devices has twin tailwinds signalling a robust future – ageing and obesity. Both impact breathing, with sleep apnoea undetected in a large segment of the US population. In 2022 the sleep apnoea market was valued at USD7.5 billion dollars. Forecasted growth is at 7.5% CAGR, with the market value to reach USD$16.5 billion by 2032.

In addition to product growth, ResMed now offers a suite of software products to respiratory health professionals on a Software as a Service (SaaS) model. Year over year, the share price is up 24.84%.

Source: ASX 1/5 2023

ResMed grew revenues in each of the last four years, and by FY 2022, net profit had exceeded the pre-pandemic level. One analyst has a STRONG BUY rating on the stock; three have BUY or HOLD ratings; and one at UNDERPERFORM.

ResMed Financial Performance

Source: ASX 1/5/2023

Sonic Healthcare (ASX: SHL)

Sonic operates in two healthcare sectors – pathology and diagnostic imaging. Both are growing in demand. The company gets 85% of its revenue from pathology and ranks in the top three in all markets it serves –Australia, Germany, Switzerland, the UK, and the US. The company also operates primary care medical centres across Australia.

Global growth for pathology services has a CAGR of 3.2% to 2030. In 2022 market size was USD $217.53 billion, while diagnostic imaging has a CAGR of 4.3%, expected to grow from USD $31.9 billion in 2023 to USD $45.8 billion in 2030.

Sonic has a stellar ten-year share price performance appreciation, up 141.2% along the way, with continuous dividend payments.

Source: ASX 1/5 2023

Sonic faced the same COVID challenges as many healthcare providers – elimination of non-life-threatening procedures. Yet the company managed to continue its revenue growth, with profit dipping slightly in FY 2020. Profit in FY 2022 was more than two and a half times the pre-pandemic level.

Source: ASX 1/5 2023

Pro Medicus Limited (ASX: PME)

Pro Medicus serves the professional radiology and clinician sector globally with three interrelated software offerings. The company provides radiographic imaging systems (RIS), and Pro Medicus offers picture archiving platforms and a communications platform.

Pro Medicus also offers management and control systems for business operations. The company’s Visage products allow 2-D, 3-D, and 4-D imaging with full archiving and easy retrieval capabilities for physicians and clinicians using Pro Medicus systems.

The global market for radiographic imaging systems has a projected CAGR of 7.9%, reaching USD $3.2 billion by 2032. That does not reflect the competitive advantage the company has by coupling its RIS platform with PAC ( picture archiving and communications).

Year over year, the stock price is up 40.6%, but over the five-year period that included the outbreak and the new strains of COVID, the share price rose from $7.09 per share to #60.09, an increase of 747.5%.

Source: ASX 1/5/2023

Pro Medicus has the distinction of being one of very few stocks that managed to grow both revenue and profit in each of the last four fiscal years, despite COVID.

Pro Medicus Financial Performance

Source: ASX 1/5 2023

The global healthcare sector is set to benefit from two long-term tailwinds – people in the developed world are living longer and require more medical care into old age.

Picking the best ASX healthcare stocks to buy in 2023 is challenging, given the number of solidly established stocks and promising startups. For the risk-averse, market potential is a critical factor in selecting the best. A large company operating in a market that has reached or is approaching saturation is not as desirable an investment as a business in a sector expected to grow.