2 top stocks liked by IML |
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23/01/2018
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<p><strong>Glenn Freeman</strong>: I'm talking with Daniel Moore from Investors Mutual. With the healthcare sector being an area that they have been quite bullish on for some time, he is telling me what some of his favorite companies are within this space.</p>
<p><strong>Moore</strong>: So, the two that stand out – I mean, they have had a bigger run in the past couple of weeks. But Sonic, Sonic is the global leader in pathology. It's number one in a number of markets it operates being Australia, Germany, Switzerland, and the U.K. It's number three in the U.S. It's a really steady business. Pathology, the sort of revenue streams grow at sort of 4 per cent or 5 per cent pretty consistently. So, it's got that nice recurring nature to it. It's got a strong competitive advantage being the largest in the sector. So, it's got the lower costs because of its scale. And the management team have been there almost from the beginning. So, a very long-term management team. They have done a great job for several decades. So, we quite like it. And the valuation was reasonable. Very small premium to the market despite its great track record over a long period of time.</p>
<p>The other sort of new thing which has made it more interesting is, in Australia, the funding environment for Medicare looks far more assured than it has for a long time. And Medicare has been a source of government savings from the liberal government. But at the last election, they nearly lost the election under the Labor “Mediscare” campaign.</p>
<p>The second one is Ansell. So, it's been a bit of rocky ride with Ansell. It's the number one player in industrials gloves and surgical gloves in the world. So, again, it sort of ticks our criteria with strong competitive advantage in terms of scale, in terms of innovation, sort of the market leader in innovation of new gloves. The earnings stream is also quite recurring, particularly on the surgical glove side. It's not really a discretionary spend. And also, in the industrial side, it's a safety product. So, if you are a worker in a car manufacturing plant, you need your gloves. Well-diversified geographically and it's got some favorable trends right now in terms of manufacturing.</p>
<p>The other part we liked about the business was it had a condom business as well which we thought was underappreciated or undervalued by the market and they have recently sold that at a very good price. And now, they have got a lot excess cash and are they going to do, hopefully, sensible bolt-on acquisitions at good prices or return that cash to shareholders via buybacks. So, we quite like that and that's trading at a market multiple right now.</p>
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