Buy Hold Sell

Buy Hold Sell: 5 emerging healthcare heroes

Fri 11 Aug 23, 9:25am (AEST)
BUY HOLD SELL PrimaryYoutube (77)
Source: Livewire Markets

Key Points

  • The healthcare sector is expected to grow in the coming years due to an ageing population and increasing demand for healthcare services
  • Regis Healthcare, Nanosonics, Telix Pharmaceuticals, and Impedimed are four unsung healthcare stocks that could be good investments
  • Tim Johnston's top pick is Impedimed, while Tobias Yao's top pick is Capitol Health

What do we all want? To live long, healthy, and prosperous lives.

Increasingly we’re able to fulfill the first two elements of that triumvirate given the advances in modern medicine and healthcare services.

What’s more, is that we have an ageing population in many parts of the world that not only have the desire for longer and healthier lives, but also the capacity to pay for them.

And that is all good news for the healthcare sector, which enjoys the benefits of said tailwinds from increases in spending on healthcare as a share of GDP.

But not every company can be a healthcare giant like CSL, Cochlear, or ResMed. At least not yet.

In this episode of Buy Hold Sell, we’re running the ruler over healthcare names that, whilst not as big as those mentioned above, sure are mighty.

To do that, we’re joined by Tobias Yao from Wilson Asset Management and Tim Johnston from Tyndall Asset Management.

Note: This episode was recorded Wednesday 9 August 2023. You can watch the show, listen to the podcast, or read an edited transcript below.

Edited Transcript

Grady Wulff: Hello and welcome to Livewire's, Buy Hold Sell. I'm Grady Wulff, and today we're going to be looking at some of the unsung heroes of the healthcare sector. Now, they may not be as big as CSL, Cochlear or ResMed, but they sure are mighty. To do that, I'm joined by Tim Johnston from Tyndall Asset Management and Tobias Yao from Wilson Asset Management. 

Now let's dive straight into it. The first stock today is Regis Healthcare. Regis is one of Australia's largest residential aged care providers. Tobias, starting with you, buy, hold or sell?

Regis Healthcare (ASX: REG)

Tobias Yao (BUY): It's a buy. The big news in the sector is that Estia got acquired by Bain Capital. Aged care, as a space, has had a very tough period over the last few years, firstly with the Royal Commission into Aged Care and then COVID. So we think a lot of those headwinds are washing through, and so it's going to be a very supportive macro backdrop. We really like Regis because the management team is growth-minded and we believe there are a lot of attractive acquisition opportunities in the space.

Grady Wulff: Tim, its share price is up 20% year-to-date. Buy, hold, or sell on Regis?

Tim Johnston (BUY): It's a buy. Despite the out-performance to date, it's still a buy. The backdrop for the whole sector is improving. Certainly, the earnings had dropped with the COVID disruption that it had, but we've had funding improvements coming through from the government or at least coming next year. But even in the longer term, the reality is this is a sector that's not funded well enough to bring on the additional capacity that's going to be needed as the over-85 cohort ages or expands quite rapidly at the back end of this decade. So we think there's further upside to funding from here and therefore it's a buy.

Nanosonics (ASX: NAN)

Grady Wulff: Nanosonics is the next stock. It has a disinfectant technology that is used in 30 countries around the world. Now, buy, hold or sell?

Tim Johnston (HOLD): Nanosonics is a hold for us. We really like the management team and what they've done with the product to date. They've penetrated the US market very, very well with that first product. For us, at this point in time though, we need to see a couple of things before we get more constructive on the name. Firstly, we'd like to see an acceleration of the penetration outside the US market or alternatively, we need to get greater insight into their second product, which is imminent, we are told, but we need to get greater clarity on the competitive positioning of that product to form a view on how quickly that uptake might be.

Grady Wulff: It is important to see where the Coris device is going in the regulatory process. Now, Tobias, the share price is up 9% year-to-date. What are your thoughts on Nanosonics, buy, hold or sell?

Tobias Yao (HOLD): Nanosonics is a hold for us as well. We do like the business, as Tim has touched on, and the quality of the product, it's very defensive. The valuation is still a little bit elevated currently, and we want to wait on the sidelines to see what management provides from a cost outlook perspective as a result, particularly with the change in the chief financial officer. So it's a hold for us.

Telix Pharmaceuticals (ASX: TLX)

Grady Wulff: Now, Telix Pharmaceuticals is the name of the year. It's a company focused on using targeted radiation to kill cancer and treat other diseases while sparing the patient's healthy cells. Tobias, staying with you, buy, hold or sell?

Tobias Yao (HOLD): Telix is a hold for us even though we are shareholders, and this is mainly just because, in the short term, their share price has done really well. We believe the easy market share gains are coming to an end. There are a few new competitors that are coming to the market. However, longer term, the total addressable market should be larger than what the market is expecting and we are positive with the kidney therapeutics product that's being launched in 2024. However, in the short term, it's a hold for us just because of the share price movement.

Grady Wulff: They're onto some very big things over at Telix. Tim, the share price is up 51%. It's been on a big run, buy, hold or sell?

Tim Johnston (BUY): It has. It's a buy for us. Agree with everything Tobias said in regards to its existing product, but this renal diagnostic that's coming to market probably in the middle of next year is going to be as big, if not bigger than the first product. The key opinion leaders are absolutely falling over themselves to get hold of this product. They think it'll change clinical practice because it's such an improvement on the products that are available to them at the moment and it'll dramatically improve patient outcomes. So we do think that there'll be a rapid uptake. And added to that is the fact that Telix will be selling this product through its existing salesforce to its existing customer base. So the education process will be far more rapid than you might normally expect with a new product to market.

Grady Wulff: Okay. We asked our guests to bring their top pick in the healthcare sector today. Tim, what have you brought for us?

Impedimed (ASX: IPD)

Tim Johnston (BUY): I think investors should have a look at Impedimed. Now, it's a name that's been around for a long time and you might be surprised that I would be positive on a stock that's tripled in the last four months. But the reality is if you go back to March of this year, Impedimed had a massive inflexion point when the body in the US that basically sets guidelines for cancer treatment included Impedimed's product in its guidelines for breast cancer therapy. So it's now being, not necessarily mandated, but advised to be used. 

What we've seen since that time is that the insurers, one after the other, have changed their medical policies and incorporated Impedimed's device into their reimbursement. And importantly, they've created a financial incentive for the cancer centres and the hospital networks to use this product. And if we know anything about the US healthcare market, you follow the money. With a financial incentive in place, we think that the adoption of this technology will be very, very rapid.

Grady Wulff: You heard it from Tim, follow the money in the US. Tobias, which stock is emerging in the healthcare sector for you?

Capitol Health (ASX: CAJ)

Tobias Yao: So a buy for us is Capitol Health. It's a radiology business and it's had some operation issues as a result of COVID. However, we believe that is turning. Recent Medicare data is showing the industry is rebounding and indexation came in better than expected over the last few months. One of the issues with the recent earnings update is there was a bit of extra cost. Our view is that this extra cost will set up the business for growth in FY24 and FY25. So we believe operating leverage should come through over the next two years, and that's why it's a buy for us.

Grady Wulff: Well, that's what we have time for today. I hope you enjoyed that episode of Livewire's Buy, Hold, Sell. If you did, why not give it a like? Remember to subscribe to our YouTube channel. We're adding so much great content every single week.

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Buy Hold Sell

Buy Hold Sell is a regular video series where Australia's leading professional investors share their views on Australian and Global Shares. This content is produced by Livewire Markets and has been syndicated to the Market Index website.

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