While a number of sectors of the ASX have delivered disappointing returns in the last year, large cap health care stocks have generally fared much better. That's largely because their performance is less correlated to the macroeconomic outlook than is the case for consumer goods companies, banks or mining stocks, for instance, and also because they offer a potent mix of growth and defensive prospects.
And, with the outlook for the ASX being decidedly uncertain, investor sentiment in health care companies could continue to increase over the medium term. With that in mind, here are three health care stocks that are set to soar in 2015 and beyond.
CSL Limited
Over the course of the last year, CSL Limited (ASX: CSL) has delivered capital gains of 40% versus 10% for the ASX. That's despite its earnings growing by a relatively low 9% last year, which is well behind the company's annualised growth rate from the last ten years of 21.4%.
Looking ahead, though, CSL is forecast to increase its bottom line by 20.2% per annum during the next two years, as it looks set to benefit from improving sales, efficiencies and also a weaker Aussie dollar (upwards of 90% of its sales are expected to be derived from outside of Australia this year).
And, while CSL trades on a price to book (P/B) ratio of 13.5, its beta of just 0.6 highlights its defensive merits and this could cause investors to bid up its shares – especially if the ASX's future remains uncertain.
Ramsay Health Care Limited
Shares in Ramsay Health Care Limited (ASX: RHC) have risen by an astounding 375% in the last five years, and this is evident from the private hospital provider now having a sky-high price to earnings (P/E) ratio of 34.6. That's considerably higher than the ASX's P/E ratio of 16.7, and also the health care and equipment services sector (to which Ramsay belongs), which has a P/E ratio of 22.6.
Despite this, there is room for expansion in Ramsay's rating. That's because it has a defensive business model, with evidence of this being its ability to increase cash flow on a per share basis by 14.6% per annum during the last 10 years. And, with Ramsay having a price to earnings growth (PEG) ratio of 1.76, it still seems to offer growth at a reasonable price.
Cochlear Limited
In the last year, shares in Cochlear Limited (ASX: COH) have outperformed the ASX by 48%. That's despite the medical devices company seeing its bottom line fall by 29.3% last year. This, of course, has impacted on its shareholder payouts, with Cochlear set to cut its dividend by 19.3% in the current year.
While this puts it on a dividend yield of just 2.3% in 2015, Cochlear's dividend growth prospects are relatively strong. For example, it is expected to increase dividends per share by 8.5% next year and, with a payout ratio of 70%, its current dividend level appears to be sustainable. Add to this earnings growth forecasts of 38.9% per annum over the next two years and Cochlear could become an excellent income stock, with investor sentiment improving as a result.
