Let's refocus and consider the truism: "A rising tide lifts all boats". Do we want to commit our hard-earned to stocks in a retail sector that is being ravaged by structural change and dependent on a revival in sluggish consumer demand?
The alternative to a retail stock like Harvey Norman Holdings Limited (ASX: HVN) is a stable company like Telstra Corporation Ltd (ASX: TLS) that sells non-discretionary products in an expanding sector.
A sector linked to the ageing population:
The listed Health Care sector represents a diverse range of stocks involved in pharmaceuticals, biotechnology, medical practice and pathology operators. Some stocks may be termed defensive, while others are highly speculative. If you are selective, the potential for explosive growth exists.
This is shown by the performance of three superstars in the sector. Over a five-year period, Mesoblast Limited (ASX: MSB), Sirtex Medical Limited (ASX: SRX) and Ramsay Health Care Limited (ASX: RHC) have gone up 460%, 360% and 320% respectively, not including dividends.
The Healthscope Float – Do I invest?
With the imminent float of Healthscope, it is timely to consider: Will Healthscope join the ranks of these outperformers? To do this we must first consider the business mix of the company and then look at valid comparative companies on the ASX.
Behind Ramsay Health Care with around 26% market share, Healthscope is Australia's second-largest private hospital operator, owning 41 private hospitals and managing three others. It is expected to pay a dividend of between 3% and 3.5%, which compares with the Ramsay yield of 1.9%.
Healthscope is also a leading provider of pathology services in Australia, New Zealand, Singapore and Malaysia. In Australia this includes nearly 600 collection centres, 69 accredited laboratories, 46 medical centres and 11 specialist skin cancer clinics.
This brings into play a comparison with Sonic Healthcare Limited (ASX: SHL), which is primarily a provider of pathology services with smaller businesses in radiology and medical centres. Over the last five years it has risen just over 50%, not including dividends. These returns are very good but moderate by comparison to Ramsay Health Care. Fellow pathology provider Primary Health Care Limited (ASX: PRY), has actually fallen slightly, highlighting the level of disruptive government regulation in this area.
What Now:
In my opinion, an investment in Healthscope will provide a very good medium-to-long term investment. Were it a specialist in hospitals the stock would be an outstanding proposition. However, the highly regulated nature of pathology will in all probability subdue its performance by comparison with the shooting star that is Ramsay Health Care. Another star performer in the making which has a great growth profile and a formidable fully franked dividend is revealed in the following FREE research report.
