Health insurer Medibank Private Ltd (ASX: MPL) has a lot of positive attributes, and is a strong business despite some of the challenges it is currently facing.
However, due to these challenges and its current price not offering enough of a discount, in my opinion, I would prefer to buy several other companies before Medibank today. Here are two of them:
Vocus Group Ltd (ASX: VOC)
This telecom utility only pays a small dividend at present, but this is expected to grow at modest rates over the medium term as the company's continued investment in new telecom fibre bears fruit. With strong long-term tailwinds for data usage, the defensive nature of this business (the 'internet utility'), modest debt levels, and an attractive price, Vocus looks to me like a stronger prospect than Medibank.
Vocus' company accounts appear a bit messy at the moment due to recent acquisitions, and 12% of Vocus' total shares are 'held for short sale', which means that a large number of shareholders are betting that the company's price will fall – for example if recently acquired businesses underperformed. However, over the long term, Vocus' networks should give it the ability to reliably generate cash, with a (modest) level of risk similar to Medibank, in my opinion.
Retail Food Group Limited (ASX: RFG)
Boasting a 5.5% fully franked dividend, Retail Food Group is an obvious candidate as it pays a larger dividend than Medibank, and is also growing much faster. The company's investments in coffee roasting facilities and an industrial bakery have given it scale, while continued roll-out of its franchises overseas provide a reasonable runway for continued growth into the future.
This company has higher levels of debt and the profitability of franchisees has been called into question recently, which raises some uncertainties – Retail Food Group is a higher-risk, higher-reward proposition compared to both Vocus and Medibank.
