The healthcare industry benefits from an ageing population combined with the fact that as technology develops we are living longer. Below I look at two ASX shares, ResMed Inc (ASX: RMD) and CSL Limited (ASX: CSL), which are set to benefit.
Defensive Characteristics
A number of prominent economic analysts have recently aired their concerns of a slowing economy. However, the healthcare sector might be somewhat shielded from any wider economic downturn due to the unique nature of the industry.
Health is one of — if not the — top priority for most people and is an area where people don’t tend to cut their spending as quickly as they would in other areas when times get tough. If you are tossing up between treating your chronic back pain or taking a one-week international holiday it’s likely that the vacation is going to be pushed off into the distance.
As baby boomers continue to reach retirement age in record numbers the demand for healthcare-related services is only going to grow.
ResMed Inc
ResMed Inc is a medical equipment company that is best known for its devices that treat sleep-related breathing disorders such as sleep apnea. ResMed has been growing strongly for a number of years with its devices gaining more widespread use. With a huge addressable market, Resmed hopes to grow at a substantial rate for many years to come.
Based on the consensus forecast by analysts, ResMed currently trades at a price-earnings ratio (P/E) equivalent to 36 times expected profit in 2020. This certainly doesn’t appear cheap on face value however the company has proven it can grow profits quickly.
CSL Limited
CSL Limited is one of the highest-quality companies listed on the Australian share market. With its headquarters in Melbourne, CSL is a global success as a biotech company that researches, develops, manufactures and markets products for the treatment and prevention of serious medical conditions. CSL stays at the forefront of product development thanks to a huge commitment to research and development which has allowed it to continually grow shareholder wealth over a number of years.
At the current share price CSL trades at 33 times FY20 profit. Given its track record of strong performance, many would argue the lofty valuation is well and truly justified.
Picking A Winner
I think both of these businesses are of especially high quality and would be somewhat resistant to an economic downturn. Whilst neither are selling cheap they offer investors an opportunity for long term growth at a reasonable price. If forced to pick between them I’d choose ResMed but I’d see a pullback in the share price of either as a potential buying opportunity.
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Disclosure: At the time of publishing, Luke has no financial interest in any companies mentioned.
