In the last five years the S&P/ASX 200 Health Care Index (Index: ^AXHJ) (ASX: XHJ) has provided investors with a staggering 140% return.
Although this year the healthcare index is tracking below the benchmark S&P/ASX 200, I expect in the long-term its outperformance will continue. As Australia's population ages and chronic diseases become more prevalent, I feel demand for healthcare products and services will continue to rise.
Three companies which I expect to benefit are as follows:
Australian Pharmaceutical Industries Ltd (ASX: API)
The owner of the Priceline pharmacy brand delivered a strong FY 2016 result culminating in an 18% jump in net profit after tax to $51.4 million. Up until recently I felt its shares were a little on the expensive side. But due to its shares underperforming the market this year I think they are great value now at 15x estimated FY 2017 earnings according to CommSec. Management expects another strong result next year which makes it an opportune time to invest in my opinion.
Japara Healthcare Ltd (ASX: JHC)
Whilst Australia's aged care operators have suffered a torrid time this year, I feel confident that Japara is through the worst of it now and can start to focus on its growth. Managing director and CEO Andrew Sudholz stated at the company's recent AGM that he was optimistic on the future and reiterated his guidance of 11% EBITDA growth in FY 2017. With demand for beds likely to increase substantially over the next decade, I believe Japara is in a great position to grow.
Medical Developments International Ltd (ASX: MVP)
Although this growing healthcare company is definitely on the expensive side at 83x estimated FY 2017's earnings, I'm optimistic that the company's international expansion will deliver the level of growth required to justify the premium. Not only has its pain management product Penthrox gained approval for sale in countless countries this year, but the company has embarked on a clinical program to expand its use into minor surgical procedures. This market alone is worth upwards of $2 billion a year.
