Regular readers will know that a fairly large proportion of my portfolio is exposed to the healthcare industry. In fact, 40% of my holdings are healthcare related stocks, because I have a high degree of confidence that the markets in which they operate will experience growing demand for many years to come.
Another near certainty is that one day the U.S. will increase interest rates. When that happens, or probably well in advance of it, the Australian dollar is likely to fall against the greenback. If you believe the Australian dollar will drop, then you'll want to examine healthcare companies that earn plenty of U.S. dollars.
Such companies will benefit from dual tailwinds: a lower Australian dollar and the ageing population. Many readers like to practice buy-to-hold investing and prefer established companies with long track records of success. This is the best choice for many investors, so here are my top 3 blue-chip healthcare stocks that are earning U.S dollars:
Cochlear Limited (ASX: COH) has been my number one blue-chip healthcare stock for most of the last 12 months. The company makes top-of-the-line hearing aids and cochlear implants that bring hearing to the profoundly death. The newly launched Nucleus 6 hearing system is better at switching settings between environments than previous models, and sales have thus far exceeded expectations.
Personally, I forgot the Noah principle: predicting rain doesn't count, building arcs does. Yep, that's right: my aversion to massive companies saw me miss potential gains of 15% – 20% in just a few short months.
Currently, virtually no Cochlear shares are sold short and the market is more optimistic about the company's prospects. My main reservation is that the dividend payout ratio has been over 100% for two years now. For a company with net debt of over $180 million, I'm not sure that's wise.
In comparison, ResMed Inc. (CHESS) (ASX: RMD), a company that makes devices for managing obstructive sleep apnea (OSA), could easily afford to increase its low 2% dividend, as it carries net cash of about $600 million.
I came extremely close to buying ResMed shares back in January when I argued that the half-yearly results disappointment was a good opportunity to buy. Although the share price is up about 15% since then, I still think ResMed is hard to go past, especially if you like to invest in well known, blue-chip companies.
Not only is ResMed dominant in its field, but it has a strong balance sheet, and benefits from a falling Australian dollar, increasing obesity and an ageing population. Whereas many of Cochlear's customers are born deaf, relatively few of ResMed's customers are young. If I had to choose a multi-billion dollar ASX-listed company to buy today, ResMed would probably be the one.
Finally, CSL Limited (ASX: CSL) rounds out my trio of blue-chip healthcare giants. CSL is perhaps the premier business on the ASX, as it provides absolutely critical blood plasma products to hospitals around the world. Although it won't benefit from tailwinds to the extent that ResMed will, the company treats conditions that are considerably more life-threatening than either deafness or sleep apnoea.
Indeed, while the other two companies I've mentioned in this article manufacture devices that companies in China can copy relatively easily, there's no easy way to mimic the blood products CSL provides.
In fact, quality control is of the utmost importance with blood products and CSL's Albumin is in high demand in China. Albumin is used to increase blood volume in emergency situations and in surgery. Over the last few years the product has grown as a proportion of the company's sales: from 10% in 2011, to 12% last year and 13% in FY 2014.
Although the company operates in many jurisdictions, the biggest single currency it earns is U.S. dollars, by quite a margin. That makes the company a decent hedge against a lower Australian dollar. Unfortunately for bargain hunters, the company relentlessly repurchases its own shares so they are rarely cheap. But, when the next big crash hits, CSL will be the first stock on my shopping list.
