Healthcare has been one of the best industries to be invested in over the last 10 years. Its defensive earnings yet growing demand due to demographics could mean it's a winner for at least another decade or two.
However, the trouble is knowing which healthcare stocks to buy. There are lots of options that focus on just one healthcare treatment such as Cochlear Limited (ASX: COH), Monash IVF Ltd (ASX: MVF) and ResMed Inc. (CHESS) (ASX: RMD).
However, it's quite plausible to imagine a competitor coming along and inventing a better treatment, taking a lot of earnings away from the above businesses.
Perhaps a better approach is to invest in healthcare businesses that are part of the chain of treatment, but not directly responsible. Specifically, I think private hospitals and private health insurers could be good options, such as the following:
Ramsay Health Care Limited (ASX: RHC)
Ramsay is one of the biggest private hospital operators in the world with operations in countries like Australia, France and the UK.
It has provided amazing returns for investors since 2000, generating great capital growth and income. More could be on the way over the coming decades.
Ramsay is currently trading at 27x FY17's estimated earnings with a grossed-up dividend yield of 2.54%.
Healthscope Ltd (ASX: HSO)
Healthscope is the second-largest private hospital operator in Australia. It is much more focused in Australia than Ramsay, which could be a positive or negative depending on if you think healthcare operators are better off staying in Australia. Various companies have shown how it may be better staying here.
The number of additional facilities that Healthscope are constructing will be a boost to earnings in the coming years. For example, the Northern Beaches Hospital in Sydney will add 450 beds to Healthscope's total.
It's currently trading at 20x FY17's estimated earnings with an unfranked dividend yield of 3.44%.
NIB Holdings Limited (ASX: NHF)
NIB is one of Australia's largest private health insurers with a market capitalisation of $2.71 billion.
Management are impressively growing the number of policyholders every year through a variety of different sales channels and partnerships.
It has shown it's possible to achieve great growth even in the difficult situation the private health insurers find themselves in at the moment. Health costs are rising quickly, but policyholders are struggling to keep up with the premium costs. NIB is certainly executing its strategy better than Medibank Private Ltd (ASX: MPL).
NIB is trading at 23x FY17's estimated earnings with a grossed-up dividend yield of 4.05%.
Foolish takeaway
I think all three of these companies are great healthcare options. At the current prices, I think Ramsay would be my preference for a great long-term buy, whilst Healthscope and NIB would also be good choices for income and growth.
