Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 322

Four companies riding the healthcare boom

Healthcare is a sector with plenty of tailwinds. This article identifies four companies that stand to benefit from demographic and economic trends while also providing a social good.

Three major trends to follow

Three major trends are underway that are positive for companies operating in the healthcare sector:

  1. The ageing of the population means more money is being spent more on healthcare.
  2. Rising living standards cause people to preference healthcare spending over other consumer goods.
  3. Technology improvements create additional opportunities.

Along with these trends, healthcare is a sector that aligns well with our core beliefs as an ethical funds management business. Healthcare technologies have made phenomemal advances that enable people to live longer, healthier lives. But that doesn’t mean we will invest in any healthcare company. Alongside our disciplined investment criteria we are also guided by the Australian Ethical Charter. For example, we have strict restrictions when it comes to medical testing using animals and we require biotech companies to conduct their research responsibly.

These ethical considerations and economic tailwinds combine to make healthcare a significant part of our Australian Shares Fund at approximately 15-20%. We try not to pay too much attention to macro factors or the index when we think about stocks, and we invest in smaller sized companies which often have a longer pathway of growth.

The healthcare companies we invest in are involved in a range of activities including pharmacy, insurance, radiology, medical devices and different sorts of pharmaceuticals.

Here are four examples of healthcare stocks we hold in our Australian Shares Fund.

Fisher & Paykel Healthcare

Fisher & Paykel is generally associated with household appliances, but it also has a healthcare division which was spun out in 2001. We’ve been invested in Fisher & Paykel Healthcare for around 10 years and it’s a great example of a company that’s managed to reinvent itself several times.

The big discovery for Fisher & Paykel Healthcare was that humidifying air used for breathing during intensive care (ie, emergency situations) improves patient outcomes. They’ve managed to take that core technology into non-invasive ventilation, sleep apnea and some surgical procedures. Their big growth focus currently is re-shaping the delivery of oxygen therapy with their ‘Nasal High Flow’ solution which is used in the care of infants and children.

These products have delivered handsome rewards to investors who have been attracted to Fisher & Paykel’s high-margin recurring consumable earnings. As the stock has appreciated we’ve adjusted our position size down, but they still appear reasonably valued against some higher rated sector peers.

Healius

Healius was formerly known as Primary Health Care. It has been a long-term share market underperformer in which we have recently accumulated a position. Their core diagnostic and medical centre assets are potentially strategically valuable despite their operational struggles, and there has been public speculation about corporate activity in the stock. More importantly, we believe earnings have stabilised following a period of decline and the regulatory environment is benign. The company’s balance sheet has improved following a capital raising and the accounting practices of the company have become more conservative through time. Valuation metrics look appealing in the context of the sector.

Capitol Health

Capitol Health is a diagnostic imaging business. This was more of an opportunistic investment for us because it was a company going through quite a lot of problems when we first invested. Like many companies that make lots of acquisitions, it ran into problems after it grew too quickly and took on too much debt. We participated in the recapitalisation of the business at a share price of 14 cents as part of the company’s plan to take out costs and reduce debt.

That strategy played out well with a few ups and downs along the way. The company’s balance sheet received a major boost with the sale of its NSW assets at an attractive price. Capitol Health remains in our portfolio and trades at a reasonable earnings multiple. It’s also within an industry that may present further opportunities for consolidation down the track.

Cyclopharm

Finally, Cyclopharm is a smaller emerging healthcare technology player that represents a small position in our portfolio. It’s an early-stage company that actually has revenue and pays a dividend, which is somewhat unique for the sector.

Cyclopharm has a lung-imaging solution for patients who are suspected of having pulmonary embolism but who are unable to have CT scans. The company has developed a gas that’s inhaled in a process called ventilation-perfusion. And they’ve actually commercialised this technology already. It’s distributed in 55 countries and has been written up in guidelines as a highly-efficacious technology in that space.

The real opportunity here is that the major market in the world where this technology has yet to be approved is the US. It’s currently going through a clinical trial in the US which has taken longer than expected. But this trial is once more advancing and we’re quite excited about the opportunity it represents for us as investors and for the patients who stand to benefit.

 

Mike Murray is an Analyst at Australian Ethical, a sponsor of Cuffelinks. This article is general information and does not consider the circumstances of any investor.

For more articles and papers from Australian Ethical, including Graham Hand's interview with AE's Managing Director, Phil Vernon, please click here.

 

RELATED ARTICLES

Compare the pair: Expensive versus cheap

banner

Most viewed in recent weeks

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Are franking credits hurting Australia’s economy?

Business investment and per capita GDP have languished over the past decade and the Labor Government is conducting inquiries to find out why. Franking credits should be part of the debate about our stalling economy.

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

The huge cost of super tax concessions

The current net annual cost of superannuation tax subsidies is around $40 billion, growing to more than $110 billion by 2060. These subsidies have always been bad policy, representing a waste of taxpayers' money.

Latest Updates

Superannuation

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

Superannuation

Less than 1% of wealthy families will struggle to pay super tax: study

An ANU study has found that families with at least one super balance over $3 million have average wealth exceeding $19 million - suggesting most are well placed to absorb taxes on unrealised capital gains.   

Superannuation

Are SMSFs getting too much of a free ride?

SMSFs have managed to match, or even outperform, larger super funds despite adopting more conservative investment strategies. This looks at how they've done it - and the potential policy implications.  

Property

A developer's take on Australia's housing issues

Stockland’s development chief discusses supply constraints, government initiatives and the impact of Japanese-owned homebuilders on the industry. He also talks of green shoots in a troubled property market.

Economy

Lessons from 100 years of growing US debt

As the US debt ceiling looms, the usual warnings about a potential crash in bond and equity markets have started to appear. Investors can take confidence from history but should keep an eye on two main indicators.

Investment strategies

Investors might be paying too much for familiarity

US mega-cap tech stocks have dominated recent returns - but is familiarity distorting judgement? Like the Monty Hall problem, investing success often comes from switching when it feels hardest to do so.

Latest from Morningstar

A winning investment strategy sitting right under your nose

How does a strategy built around systematically buying-and-holding a basket of the market's biggest losers perform? It turns out pretty well, so why don't more investors do it?

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.