MoneyTalks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to hear what’s hot, their top picks, and what they’re looking out for.
Today we hear from Merewether Capital portfolio manager Luke Winchester.
What’s hot right now?
Let’s chat healthcare.
Winchester says it is a fantastic sector to look at in volatile times because it is so defensive given the vast majority of the spend in the industry is non-discretionary.
“Most of the funding comes from governments who won’t remove that fiscal support even in the most dire of economic conditions,” he adds.
“On top of that defensiveness, the sector also offers pockets of high growth, particularly for businesses facing the technology side of healthcare as digitisation and general technology improvements grow faster than the overall defensive healthcare spend.”
Another aspect that ties in with a shorter-term point of view is many healthcare businesses were adversely affected by COVID as all attention shifted to surviving the pandemic.
“Many countries are now on the other side of those issues and we are hearing from many healthcare businesses they are now able to get better access to hospitals and facilities to try and make sales, install hardware, and upgrade software,” he says.
“In a time of earnings uncertainty for many sectors, I see some healthcare stocks trading on reasonable multiples which may have earnings tailwinds in the short term and long term which is very attractive right now.”
Top picks
Winchester says he has a couple of stocks in the Merewether Capital Inception Fund which fit the bill.
AHC is a provider of nurse call hardware and software.
“Definitely a victim of the Covid effects outlined above, a good chunk of their revenue comes from retro-fitting older hospital nurse call systems to the newer technology offered by AHC which includes real time location services along with better workflow and reporting software,” Winchester explains.
“However while they struggled to get access to hospitals to install and recognise revenue the business has been winning work and building up a healthy backlog of revenue which will be recognised in the coming years as Covid effects subside.
“The business trades on roughly 10x earnings (though admittedly can be lumpy) and growth should be consistent as they eat into their backlog. I think AHC offers a fantastic growth at a reasonable price style investment at these levels.”
GLH is a provider of clinical management software for community health and smaller hospitals.
“Business has been around for many years with very sticky long term customers but was struggling for growth.
“A new CEO (Michael Davies) came into the business last year from Macquarie Telecom (ASX:MAQ) bringing much need enterprise sales experience to the business.
“It took Michael some time to implement the systems he needed to, but the business has recently started winning some contracts and like AHC has a healthy pipeline of new work to chase.”
Winchester says GLH has a chance of capturing the higher growth segment of healthcare spending as they offer the digitisation to move customers off bulky and inefficient paper based systems.
“They have historically been a profitable business but have tipped into a small loss to flesh out the growth engine that has been built, but at 2x ARR with plenty of cash in the bank I think it is a low risk play on a new CEO successfully implementing his growth strategy.”
The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead.
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