There are many different ways to structure a portfolio.
Some investors choose to own a very concentrated group of stocks, others choose to diversify widely.
Another strategy for investors is to utilise a top down approach whereby positive macro themes such as growing demand for technology or increasing tourist numbers are identified. An investor then looks for specific stocks that will provide portfolio exposure to the thematic.
Right now, one sector exhibiting a positive thematic is aged care.
According to a study recently conducted by IBISWorld,
"Australia's ageing population is supporting high demand for the aged care residential services industry, with 4.7% growth projected over 2015-16."
Importantly, IBISWorld is forecasting that the number of Australians aged 70 years and over will increase at an annualised rate of 4% over the next five years which suggests a solid tailwind for the sector.
This scenario supports increased demand for more residential care places and more facilities.
It's a dynamic which hasn't been lost on investors with three high-profile initial public offerings (IPO) occurring in 2014. As IBISWorld rightly pointed out, the IPOs of Regis Healthcare Ltd (ASX: REG), Estia Health Ltd (ASX: EHE) and Japara Healthcare Ltd (ASX: JHC) were all well received by the market with each stock significantly outperforming the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).
This outperformance has led to these three stocks all commanding premium market valuations based upon trailing price-to-earnings multiples.
Looking out to 2017 however and assuming forecast growth is achieved, Estia Health is trading on a PE multiple of 15.6x which makes it not only the cheapest relative to its peers, but also attractive relative to the wider market. (source: CommSec).
