There will be no slowing the demand for healthcare over the next decade.
The aggressive growth profile is a compelling reason to own top-performing healthcare companies and there are two in particular I'm watching like a hawk: CSL Limited (ASX: CSL) and Ellex Medical Lasers Limited (ASX: ELX)
CSL Limited (ASX: CSL)
I thought blood product company CSL Limited delivered a great result for the full year 2017. Sales grew 13% and earnings per share jumped 26%. There certainly aren't many 'blue-chip' companies able to grow earnings at that kind of pace.
One point I thought was strange was CSL's announcement that it plans to raise US$600 million in a private placement in the new financial year.
Hang on! Isn't CSL still reeling in a A$500 million share buyback program? Yes, yes it is. Fortunately, much of the buy-back period was below the current share price, so the upcoming placement could add value for investors if the new capital is raised at or above the current share price.
Regardless, I see CSL continuing to grow and compound at an appealing pace and long term I think the company will continue its history of big returns for investors.
Ellex Medical Lasers Limited (ASX: ELX)
Ellex Medical Lasers designs and manufactures products to support eye health. Although the company makes 90% of its revenue selling highly specialised lasers to optometrists it is focusing on a new product, iTrack, which treats glaucoma.
Because glaucoma is associated with ageing it is expected to grow rapidly over the next decade. Ellex is investing a lot of money to expand its sales team and to capitalise on the growth.
The problem is that investors hate uncertainty so rising expenses and a weak financial result for 2017 have kept the share price falling. To me this could be a great opportunity to buy.
I especially like that the Ellex management team was early to communicate the impending higher costs and acted decisively to raise capital in December last year when the share price rocketed upwards. The capital raising was necessary to fund growth and was timed well to reduce dilution to existing shareholders.
My main concern with Ellex in the past has been the company's history of weak operating margins which were not dispelled from their most recent full year report. This may change as iTrack becomes a larger proportion of sales since the product appears to produce higher margins than the major Laser & Ultrasound segment.
