When looking for investment opportunities, I don't think you can go past the ASX healthcare sector. With our ageing population and an ever-increasing demand for healthcare services, I see strong share price growth in this segment over the next decade.
In my opinion, the following two S&P/ASX 200 Index (INDEXASX: XJO) companies are top share picks in this sector due to their technological innovation, entrenched market positions, and growing international exposure.
CSL Limited (ASX: CSL)
The healthcare giant has gone from strength to strength over the past 2 decades, evolving from a small federal government department to now sit as the second-largest company on the ASX.
CSL is fast approaching the Commonwealth Bank of Australia (ASX: CBA) to possibly take over the number one spot, with the CSL share price up nearly 70% over the past 12 months. Despite this very strong share price growth, I don't think its too late to invest in this market-leading company.
CSL has become a global market leader in blood plasma research and disease treatment, reaching more than 60 countries. A key factor underpinning the company's strong growth has been its continued large investment in research and development to create new products, and the fact that CSL's earnings base is essentially shielded from any business cycle downturn.
The company's earnings growth has averaged an impressive 16.5% annually over the past 3 years. I believe that CSL is well-positioned to continue to deliver strong earnings growth over the next 5 to 10 years.
CSL shares are currently trading with a price to earnings ratio of around 48, which is well above the market average. However, I believe this is quite reasonable for a top-quality healthcare share with strong growth prospects.
Cochlear Limited (ASX: COH)
As the proportion of the global population over 65 continues to grow, there will be a rising demand for hearing products and solutions over the next few decades. This is where Cochlear steps in.
The World Health Organization has forecast there will be 1.5 billion people over the age of 65 by 2050, almost three times the number back in 2010. I believe that Cochlear is very well positioned to benefit from this trend.
In November last year, Cochlear received approval from the U.S. Food and Drug Administration (FDA) for its Osia 2 system.
Cochlear intends to commence commercial rollout of Osia 2 in the US in the second half of 2020, which could lead to a significant revenue boost. The company is also making good progress in constructing a new manufacturing facility in Chengdu, China.
In its most recent FY20 guidance, Cochlear revealed it expects to deliver a reported net profit of $290 million to $300 million during FY20. If achieved, this would be a 9–13% increase on the underlying net profit achieved in FY19.
The Cochlear share price has shown solid growth over the past 12 months, up by 24%. I believe that with some new product releases, the company appears well placed for further strong share price growth over the next 12 to 24 months.
