The number of companies providing a shock to shareholders and the market seems to be increasing. Some healthcare stocks have fallen by double digits in a single day, or by over 20% or even 30%.
Some of the falls may be completely justified. Growth companies were being priced at increasingly high earnings multiples, perhaps too highly. However, I think some of the falls in companies provide a great opportunity to buy shares at discounted prices.
Below are two healthcare companies that I think could provide great short term and long term returns:
Healthscope Ltd (ASX: HSO)
Healthscope is Australia's second-largest private hospital operator with a market capitalisation of $4 billion.
A few months ago it updated the market to say that patient numbers for the September 2016 quarter were similar to patient numbers in the 2015 quarter. If patient numbers don't rise for the whole year, then the profit can't grow either.
This created a huge sell off of the shares, going from $2.93 to today's price of $2.33. Considering the long-term aging of Australia's population and the government's desire to ease the burden on public hospitals, Healthscope could see long term growth.
I think now is a great chance to buy Healthscope shares whilst it's trading cheaply. It's trading at 20.6x FY17's estimated earnings with a dividend yield of 3.18%, which will look even more attractive once it starts franking its dividend.
Monash IVF Group Ltd (ASX: MVF)
Monash IVF is one of the two biggest IVF providers in Australia, it has a market capitalisation of $406 million.
Its main rival and competitor is Virtus Health Ltd (ASX: VRT). Virtus recently updated the market to say that Medicare data released on 25 January 2017 showed that fresh IVF cycle activity in the first half of FY17 fell by 6%, but Virtus' fresh cycle activity fell by 7.2%.
Unless Monash IVF has done a great job at stealing market share from Virtus, Monash IVF will likely also have seen a fall in IVF cycles. Monash IVF's share price fell as a result of Virtus' announcement and is still 7% lower than before the announcement. It's 32% lower than the all-time highs in October 2016.
I think the current price could be around the lowest the shares will go as they could pick up again when IVF cycles grow, even if low cost providers are taking more market share. The age families are having children is getting steadily older, which makes needing IVF services more likely.
Over the long term, I suspect Monash IVF will continue producing higher success rates and more advanced techniques to grow revenue.
Monash IVF is trading at 13.1x FY17's estimated earnings and a trailing grossed up dividend yield of 7.02%.
Time to buy?
Monash IVF clearly has the bigger dividend, however I think over the next five to ten years Healthscope will provide the best total shareholder return thanks to its impressive list of projects. For an even better dividend stock than both of these choices, you should consider our number one choice for 2017.
