One of the standout industries for performance in 2014 was healthcare. Living up to its reputation as a defensive industry, it powered up while the S&P/ASX 200 (ASX: XJO) (Index: ^AXJO) was held down to low single-digit gains.
Healthcare equipment producer ResMed Inc (CHESS) (ASX: RMD) was one of those healthcare companies that took off in 2014, up about 30% over the past year. Since it broke through above $6 a share in late November, the stock has gone parabolic, hitting an all-time high of $7.13 this week.
That may make some investors want to ring the register, which is fair, but I wouldn't sell out completely because the company still has more to offer. Here are three reasons why you should stick with your ResMed shares as a long-term investment.
1) Market leading position
As a market leader in the US for breathing aids and respiratory devices, it can further develop products that treat breathing disorders like sleep apnea, which about 1 out of 15 Americans are estimated to suffer from, meaning millions of potential customers. It controls about 40% market share of continuous positive airway pressure (CPAP) machines and 70% of the market for respirator masks.
2) Growing e-health industry
New technology, faster telecommunications and mobile app development are coming together to make a new industry – e-health. Now, you can monitor, record and have your fitness and health analysed by professionals on a real-time basis. Wearable tech like Apple Watches and Fitbit devices opens access to users, even if they are not chronic health sufferers.
ResMed is working together with Nintendo to create products that people can wear and measure breathing and heart rate patterns. Likewise, its breathing analysis app is part of the Apple HealthKit. Users without respiratory conditions can include this into their exercise workouts, which could open a new, big market for ResMed. The company also has developed its own contact-less tech products like S+ that everyday users can easily record their breathing and heart rate while they sleep with nothing attached.
3) Strong balance sheet
The company generates high net profit margins over 20%. It has a cash and cash equivalent position of about $900 million, which is more than double its long-term debt, so this company's balance sheet is solid. Just its $366 million net profit in FY 2014 is about equal to the long-term debt, so the company should have no liquidity problems and be able to fund more product development.
