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Macquarie Group picks the 3 best healthcare stocks for 2019

Brendon Lau
Healthy Heart

Healthcare stocks have been among the stars of the latest reporting season as a number have beaten market expectations as their defensive earnings profile appeal to those seeking shelter from the macroeconomic volatility.

Their outperformance is evidenced by the close to 5% gain in the S&P/ASX 200 Health Care (Index:^AXHJ) (ASX:XHJ) index since mid-February (as the reporting season got into full swing), compared to the 2.4% increase in the broader S&P/ASX 200 (Index:^AXJO) (ASX:XJO).

The key contributors to the ASX 200 Heath Care index gains include the Ramsay Health Care Limited Fully Paid Ord. Shrs (ASX: RHC) share price, Sonic Healthcare Limited (ASX: SHL) and Ansell Limited (ASX: ANN).

Mind you, not all healthcare stocks are well placed to deliver healthy returns in 2019 (mind the pun). If you are wondering where the best opportunities are in the sector, Macquarie Group Ltd (ASX: MQG) have a few tips for you as the broker reviews the latest set of profit results.

Three healthcare stocks for 2019

“There were a number of surprises recorded across our sector coverage over the 1H19 reporting season,” said Macquarie.

“In our view, the most significant upside surprises related to RHC (a better than expected operational result in France, favourable UK tariff outcomes) and ANN (a better than expected 1H19 result, upgraded FY19 guidance).”

The strong results from the hospital operator Ramsay and glove maker Ansell gave the broker another reason to add them to its most preferred list of healthcare stocks, which also includes blood products maker CSL Limited (ASX: CSL).

No surprises that Macquarie rates all three as “outperform”. It likes CSL for its market leadership in the plasma collection market, growth of higher margin products and the upside from the Seqirus acquisition into FY20.

The broker also has a bullish view on Ramsay due to improving French and UK market dynamics (it has hospitals in those countries), contributions from recently completed Australian brownfield developments and further scope for cost savings.

Meanwhile, Ansell’s upside comes from its transformation program, price increases for its products and the strength of its balance sheet, which can support earnings-accretive acquisitions and/or capital management initiatives.

From darlings to dustpans

But it’s not all good news. There are some healthcare icons that didn’t make the cut. These are our largest medical device makers, Cochlear Limited (ASX: COH) and RESMED/IDR UNRESTR (ASX: RMD).

“Conversely, we see COH (flat unit sales growth in developed markets) and RMD (weaker than expected RoW [rest of the world] devices sales growth) as recording the most substantial negative surprises relative to our expectations,” said Macquarie.

The broker has slapped an “underperform” recommendation on both stocks.

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Motley Fool contributor Brendon Lau owns shares of CSL Ltd., Macquarie Group Limited, and ResMed Inc. The Motley Fool Australia has recommended Ansell Ltd., Cochlear Ltd., Ramsay Health Care Limited, and ResMed Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019