Buy Hold Sell: 5 emerging healthcare heroes

What do we all want? To live long, healthy, and prosperous lives.

Increasingly we’re able to fulfill the first two elements of that triumvirate given the advances in modern medicine and healthcare services.

What’s more, is that we have an ageing population in many parts of the world that not only have the desire for longer and healthier lives, but also the capacity to pay for them.

And that is all good news for the healthcare sector, which enjoys the benefits of said tailwinds from increases in spending on healthcare as a share of GDP.

But not every company can be a healthcare giant like CSL, Cochlear, or ResMed. At least not yet.

In this episode of Buy Hold Sell, we’re running the ruler over healthcare names that, whilst not as big as those mentioned above, sure are mighty.

To do that, we’re joined by Tobias Yao from Wilson Asset Management and Tim Johnston from Tyndall Asset Management.

Note: This episode was recorded Wednesday 9 August 2023. You can watch the show, listen to the podcast, or read an edited transcript below.

Edited Transcript

Now let's dive straight into it. The first stock today is Regis Healthcare. Regis is one of Australia's largest residential aged care providers. Tobias, starting with you, buy, hold or sell?

Regis Healthcare (ASX: REG)

Grady Wulff: Tim, its share price is up 20% year-to-date. Buy, hold, or sell on Regis?

Nanosonics (ASX: NAN)

Tim Johnston (HOLD): Nanosonics is a hold for us. We really like the management team and what they've done with the product to date. They've penetrated the US market very, very well with that first product. For us, at this point in time though, we need to see a couple of things before we get more constructive on the name. Firstly, we'd like to see an acceleration of the penetration outside the US market or alternatively, we need to get greater insight into their second product, which is imminent, we are told, but we need to get greater clarity on the competitive positioning of that product to form a view on how quickly that uptake might be.

Tobias Yao (HOLD): Nanosonics is a hold for us as well. We do like the business, as Tim has touched on, and the quality of the product, it's very defensive. The valuation is still a little bit elevated currently, and we want to wait on the sidelines to see what management provides from a cost outlook perspective as a result, particularly with the change in the chief financial officer. So it's a hold for us.

Telix Pharmaceuticals (ASX: TLX)

Tobias Yao (HOLD): Telix is a hold for us even though we are shareholders, and this is mainly just because, in the short term, their share price has done really well. We believe the easy market share gains are coming to an end. There are a few new competitors that are coming to the market. However, longer term, the total addressable market should be larger than what the market is expecting and we are positive with the kidney therapeutics product that's being launched in 2024. However, in the short term, it's a hold for us just because of the share price movement.

Tim Johnston (BUY): It has. It's a buy for us. Agree with everything Tobias said in regards to its existing product, but this renal diagnostic that's coming to market probably in the middle of next year is going to be as big, if not bigger than the first product. The key opinion leaders are absolutely falling over themselves to get hold of this product. They think it'll change clinical practice because it's such an improvement on the products that are available to them at the moment and it'll dramatically improve patient outcomes. So we do think that there'll be a rapid uptake. And added to that is the fact that Telix will be selling this product through its existing salesforce to its existing customer base. So the education process will be far more rapid than you might normally expect with a new product to market.

Impedimed (ASX: IPD)

What we've seen since that time is that the insurers, one after the other, have changed their medical policies and incorporated Impedimed's device into their reimbursement. And importantly, they've created a financial incentive for the cancer centres and the hospital networks to use this product. And if we know anything about the US healthcare market, you follow the money. With a financial incentive in place, we think that the adoption of this technology will be very, very rapid.

Capitol Health (ASX: CAJ)

Tobias Yao: So a buy for us is Capitol Health. It's a radiology business and it's had some operation issues as a result of COVID. However, we believe that is turning. Recent Medicare data is showing the industry is rebounding and indexation came in better than expected over the last few months. One of the issues with the recent earnings update is there was a bit of extra cost. Our view is that this extra cost will set up the business for growth in FY24 and FY25. So we believe operating leverage should come through over the next two years, and that's why it's a buy for us.

What healthcare stock are you backing? 

Tim picked Impedimed and Tobias named Capitol Health, but we would love to know what you think. Which emerging healthcare stock are you liking at the moment and why? Let us know in the comments section below.