Overinvested in CSL? Here are two alternative ASX healthcare stocks

I think these two stocks are healthy investment options.

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The ASX healthcare stock CSL Ltd (ASX: CSL) is one of the most impressive businesses on the ASX with how it grew from a relatively small business into the global giant it is today.

However, long-term shareholders may find themselves significantly allocated to the business because of its share price growth over the years. What are investors supposed to do about that?

I can understand if shareholders want to stay invested, but perhaps gaining exposure to the ASX healthcare sector through additional businesses could be a good diversification strategy.

I'm going to talk about two businesses that offer generalised exposure to the healthcare sector rather than being focused on one medical condition or one type of treatment.

Sonic Healthcare Ltd (ASX: SHL)

Sonic Healthcare is a pathology business with global operations. It has a presence in countries such as Australia, New Zealand, the UK, Germany, Switzerland, and the USA.

It provides an essential part of the healthcare journey so that patients can get the right treatment.

I believe this business offers defensive earnings because demand is always there – people continue to get sick regardless of the economy. Indeed, long-term demand is increasing in countries with growing and ageing populations, helping drive Sonic Healthcare's organic revenue.

The ASX healthcare stock is also regularly making acquisitions to boost its presence and scale. European acquisitions have been a focus in the last couple of years.

Sonic Healthcare is investing money and effort into artificial intelligence, which could help it lower costs and serve customers.

I think the long-term looks very promising for this business if its revenue and margins increase.

NIB Holdings Limited (ASX: NHF)

NIB is one of the largest private health insurers in Australia. Following the 25% decline in its share price in the last six months, as shown on the chart below, it looks much better value to me.

The business generates earnings in a variety of different ways, such as its core Australian resident health insurance business, the international students and workers segment and an NDIS business.

The ASX healthcare stock is in a challenging environment. Private health providers such as hospitals are facing difficulties, while the government and private health insurers are being asked for increased funding.

I don't know how this will be resolved, but I do believe this pessimistic period is a good time to be looking at NIB shares while there is pain in the sector.

NIB continues to win new policyholders, which provides scale benefits and is a tailwind for profitability. In FY25 to October 2024, its number of Australian resident health insurance policyholders had increased by a further 3.2% to 728,901.

This is not a simple turnaround, but I think the NIB share price decline reflects the difficulties and provides an opportunity for brave investors.

Motley Fool contributor Tristan Harrison has positions in Sonic Healthcare. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended CSL. The Motley Fool Australia has positions in and has recommended NIB Holdings. The Motley Fool Australia has recommended CSL and Sonic Healthcare. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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