For long-term investors in the share market, it is important to identify secular trends when deciding which individual stocks to purchase. Whilst you must also be mindful of a number of other factors, such as the quality of the management team, the company's competitive position and any possible regulatory issues, selecting businesses that stand to benefit from broader economic tailwinds can go a long way towards helping you outperform the S&P/ASX 200.
Two Australian firms that I believe are in good shape to increase in value over the next 12 months are pharmaceutical company CSL Limited (ASX: CSL) and medical device maker ResMed Inc. (CHESS) (ASX: RMD). Both businesses enjoy growing overseas healthcare markets and would be significant beneficiaries of a declining Australian dollar, which some experts forecast to hit US$0.70 by the end of this year, down from its current level of US$0.77.
Let's examine them in more detail.
CSL Limited
CSL is the world's largest supplier of blood products. Over the course of the last five years, shares in the company have appreciated 194.9%, dramatically outperforming the 28.3% return of S&P/ASX 200. In the past 12 months investors in CSL have been rewarded by a more than 30% appreciation in share price.
The CSL board has an impressive track record when it comes to capital management and creating shareholder value. It has done this via various share buybacks and increasing dividends. In addition, the company's decision late last year to purchase Novartis' influenza vaccine business helps set it up to be the second largest player in a massive global market.
Whilst it trades at a price-to-earnings premium when compared to the broader ASX, this is simply recognition of the fact that over the past 10 years CSL has grown its net profit by more than 20% per annum. With ageing populations throughout the developed world increasing demand for its products and net profit growth expected to continue at this rate over at least the next two years, CSL represents a great long-term addition to your portfolio.
ResMed Inc.
ResMed is a global leader in developing and manufacturing treatments for sleep disordered breathing, with a particular emphasis on sleep apnea. The company experienced a recent setback as a consequence of an unsatisfactory clinical trial that saw its share price fall by 18% in a single trading session on 14 May 2015. The risk of unsuccessful trial results is inherent in the biotechnology sector. Whilst the result was disappointing, ResMed is a growing business that has a lot going for it.
Over the past 12 months ResMed has rewarded investors with a return of 39.1% (plus dividends), versus the S&P/ASX 200's return of 4.1%. For the most recent quarter, ending 31 March 2015, the company generated an operating profit of US$105.9 million on revenues of US$422 million. This represented revenue growth in excess of 10% on a constant currency basis. Importantly, revenues from key American markets increased 16% to US$251 million.
Given the significant percentage of ResMed's sales that are generated overseas, a lower Australian dollar will see a natural increase in revenues from the point of view of Australian investors. With the recent pullback in share price to the $7.50 area from its April high of $9.84, ResMed represents good long-term value.
Foolish takeaway
CSL and ResMed are both outstanding, durable, ASX-listed global healthcare stocks with impressive track records of growing revenues. Furthermore, both companies stand to benefit from further declines in the value of the Australian dollar. For investors keen to gain some exposure to overseas earnings and leverage increases in global healthcare spending, CSL and ResMed would make excellent additions to your portfolio.
