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CSL, Cochlear, ResMed: 3 ways to tap into the health care market

Reported by Tim McArthur, The Motley Fool.
Friday, July 26, 2013
Topics in this article:
Asx,Cochlear,Csl,Resmed Inc,Fisher & Paykel Healthcare Corporation Limited
Companies forced to change their nameConflict in Iraq and Syria is causing serious headaches for companies who happen to share the ISIS moniker

Living in a world that on average grows and expands each year brings with it many advantages. One of these advantages is a rise in the per capita wealth of the world’s citizens. Rising wealth, pleasingly, brings with it rising health standards. One of the most obvious and glaring ways to see how higher wealth correlates with higher health is to look at the disparity between the average life expectancy of someone living in North American compared to the average life expectancy of someone living in Africa.

Given the increased spending on healthcare which occurs as per capita wealth increases, consider for a moment three listed Australian companies that have exemplary track records of creating shareholder value, solid balance sheets, have already build sound global footprints and yet still have significant growth potential ahead of them.

CSL (ASX: CSL) is the largest of the companies identified here. Having begun life as a small government division producing vaccines, CSL has grown into a $33 billion developer and manufacturer of biopharmaceutical products. Many of these products are produced from human blood plasma and are used for a huge array of therapies to treat life threatening issues. CSL also still makes vaccines in huge quantities for a number of countries and organisations.

Cochlear (ASX: COH) is an example of taking one idea and doing it well. Really well! Cochlear manufactures and sells an implantable hearing device which literally allows people who are deaf to hear. It’s an amazing product which can provide immediate improvements to someone’s quality of life. The cochlear implant is perhaps the most obvious example of how the heath care market can benefit and grow as wealth grows. Deafness is (generally) easy to identify, the implant is (arguably) the best solution, all it takes is the money to be able to purchase and fit the implant to improve the health and wellbeing of the person.

ResMed (ASX: RMD), like Cochlear sits in the medical devices space of the health care industry. In many ways ResMed has only scratched the surface of its potential. While some of its products are used for respiratory disorders which will often be readily identifiable, the issue of sleep-disorder breathing (such as obstructive sleep apnea) still goes relatively undiagnosed even in ‘developed western’ countries. This lack of identification and treatment creates a huge and as yet relatively untapped market for ResMed.

It’s always advisable to study a firm’s major competitors when you are analysing a company. CSL and Cochlear certainly face plenty of stiff competition but most of their competitors are listed on foreign stock exchanges (or not listed at all) which means a little further digging to research them. In ResMed’s case it has a direct competitor on the ASX, Fisher and Paykel Healthcare (ASX: FPH). Fisher and Paykel is a well-run, New Zealand-based firm which investors should take a look at to garner further insights about the respiratory and sleep apnea industries and to use for comparison against ResMed.

Foolish takeaway

Companies with so much growth potential ahead of them and that have already provided significant shareholders returns in the past rarely go unnoticed. This is true of the companies discussed above, and as such their high multiple share prices, at the very least, reflect their past growth. Whether their share prices currently fully reflect their future potential is a more tricky question but as always it is important to give due consideration to the price you are paying, as well as the value you are receiving.

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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

23/11/2014 11:51Sydney, Australia. 23 November,2014
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