I Am Not Sure Many Realise Australia Has Spawned Three Major Global Healthcare Giants!

 This appeared last week:

Sonic and ResMed rejoin the Buy List

These two leading healthcare stocks now trade at attractive prices.

By Graham Witcomb · 11 Apr 2025 · 3 min read

The best time to put ResMed in your portfolio was during last year's weight-loss drug scare, when the company rejoined the Buy List on 25 Jun 24 (Buy - $27.74). Back then, the share price had collapsed and the price-to-earnings ratio (PER) had fallen below 20. By January this year, the share price had breached $40.

Now Trump is giving us another shot with the company trading on a forward PER of 21, well below historical levels. This is despite medical consensus that sleep apnoea sufferers are best treated with a combination of weight-loss drugs (called GLP-1s) and CPAP machines from the likes of ResMed.

Key Points

• High-quality companies
• Moderate/large US exposure
• Both stocks undervalued

The US is ResMed's largest market by far and the company makes and sells its products across the globe. Tariffs, currencies and regulation are a perpetual threat. So are potential new treatments—surgical or medicinal—that we can't imagine today.

We suggest members deal with these possibilities through portfolio position size rather than waiting for an even cheaper price, particularly as regulatory changes can potentially have huge impacts.

ResMed, last reviewed on 3 Feb 25 (Hold - $38.60), rejoins the Buy List with a maximum portfolio weighting of 5%.

Super Sonic

As for Sonic Healthcare, its share price is back where it was seven years ago, despite almost touching $50 after huge one-off profits from covid testing. That's all gone now, making earnings more predictable. As costs fall, there's the possibility of higher margins while the forecast PER of 20 is the lowest in about a decade.

Sonic's Australian business is mature and isn't growing as fast as ResMed's, but management seems to have done a decent job investing its covid windfall profits in places like Germany, where it needs scale to increase profits and margins.

Overseas markets offer a long growth runway but Australian margins have the biggest impact on profitability. And like ResMed, regulatory and Medicare reimbursement risks are ever-present.

This is best accounted for in a conservative maximum portfolio limit of 5%. Paying a lower price won't protect you from binary outcomes, especially as a fifth of company sales are in the US—as discussed on 21 Feb 25 (Hold - $27.67)—and Trump's eraticism adds to the risk.

Nonetheless, Sonic's revenue is more diversified than ever and the current share price compensates for these risks. Messing with people's pathology tests isn't something governments take lightly. BUY—but again, watch the portfolio limits.

Note: The Intelligent Investor Australian Equity Income Fund (ASX:INIF), Intelligent Investor Ethical Share Fund (ASX:INES), and Intelligent Investor Australian Equity Growth Fund (ASX:IIGF) own shares in ResMed and Sonic Healthcare.

Here is the link:

https://www.intelligentinvestor.com.au/recommendations/sonic-and-resmed-rejoin-the-buy-list/154429 

I have to say that these 2 companies - along with CSL - have proven to be great Australian success stories who have successfully gone global and who have been very worthwhile investments for local investors over the years. I can't think of another industry in which Australia has been quite so commercially successful other than mining. We really do punch above our weight in this industry with 3 globally significant enterprises founded here!

David.