ScoPo’s Powerplays: Business as usual for ASX health stocks plus… some good news!
Link copied to
Healthcare and life sciences expert Scott Power, who has been a senior analyst with Morgans Financial for 24 years, explains what the movers and shakers have been doing in ASX health stocks.
Are you a glass half full or half empty type of person? According to researchers at Harvard T.H. Chan School of Public Health it might be worth trying to see the glass as half full.
Higher levels of optimism were associated with longer lifespan and living beyond age 90 in women across racial and ethnic groups in the 26-year study. Lead author Hayami Koga said although optimism itself may be affected by social structural factors, such as race and ethnicity, the research suggested benefits of optimism may hold across diverse groups.
“A lot of previous work has focused on deficits or risk factors that increase the risks for diseases and premature death,” she said.
“Our findings suggest that there’s value to focusing on positive psychological factors, like optimism, as possible new ways of promoting longevity and healthy aging across diverse groups.”
Researchers analysed data and survey responses from 159,255 participants in a Women’s Health Initiative in the US, which included postmenopausal women. The women enrolled at ages 50-79 from 1993 to 1998 and were followed for up to 26 years.
Of participants, the 25% who were the most optimistic were likely to have a 5.4% longer lifespan and a 10% greater likelihood of living beyond 90 years than the 25% who were the least optimistic.
The researchers also found no interaction between optimism and any categories of race and ethnicity. These trends held true after taking into account demographics, chronic conditions, and depression.
Lifestyle factors, such as regular exercise and healthy eating surprisingly accounted for less than a quarter of the optimism-lifespan association. Koga believes the results could reframe how people view decisions affecting their health.
“We tend to focus on the negative risk factors that affect our health,” she said. “It is also important to think about the positive resources such as optimism that may be beneficial to our health, especially if we see that these benefits are seen across racial and ethnic groups.”
Investors could all do with some optimism this week. The ASX has been walking with a limp throughout 2022 and this week really took a tumble, officially entering correction territory (defined as a fall of 10% or more from its last peak, which was 7632.80 in August 2021).
By 3.15pm on Friday (AEST) the S&P/ASX 200 index was down 7.82% in the past five days, while the S&P/ASX 200 healthcare index fared only modestly better, down 6.29%.
But like the world’s most famous investor Warren Buffett, Power sees only opportunities in a market sell-down.
“If a business does well, the stock eventually follows,” is a well-known Buffett quote and one Power said investors certainly should remember during the market upheaval.
“The reality of the real world is a lot of these companies are just getting on with doing their work,” he said.
Power expects the market will continue to digest new economic conditions including higher interest rates, inflation and supply shortages from the war in Ukraine for some time yet but it’s good for investors to remember they are buying into a business.
“Its important to look at the fundamentals of a business rather than the noise of the broader macro picture and markets and think longer term,” he said.
“Good business always prospers given time.”
Health imaging company ProMedicus (ASX:PME) has this week announced renewal of two contracts for a minimum value of a $47m. This will see Sutter Health (IDN) signed for a further seven years, and Wellspan Health for a further five years.
Power said PME have negotiated increased fee per transaction from both original contracts. He said as with most of its contracts, they are transaction based which provides further upside as volumes increase.
The contract renewals further marks PME’s expansion into the large integrated delivery networks (IDN) market and its ability to successfully increase fees per transaction which bodes well for future renegotiations.
“Despite continued pressure on high PE/growth names, PME continues to build on its significant position within the large enterprise networks within the US,” Power said.
“They are one of the success stories of the last decade and keep delivering with good Australian technology which is being adopted by hospitals systems in the US to help with moving X-rays throughout radiology departments.”
Power said Morgans continues to stay on the front foot with enterprise versus consumer facing technology plays like ProMedicus and are happy to continue adding to positions on weakness.
We can’t do an overview of health stocks for the week, without mentioning star player ResApp. As Stockhead’s Christian Edwards pointed out on Tuesday when markets were in free-fall there was a little green shoot of hope among the destruction with ResApp soaring 50% after global pharmaceutical giant Pfizer supercharged its offer to buy 100% of the company.
Pfizer upped its broadly supported offer for the Brisbane-based smartphone-based respiratory diagnostic maker by as much as $78m, with the proviso that RAP can reproduce the promise of its Covid-19 screening cough results.
ResApp produced impressive data in March which attracted the attention of Pfizer after its app successfully identified COVID infection in nine out of 10 Covid-positive patients just by recording the sound of their coughing.
Along with Covid, the clever app analyses the sound to diagnose and measure the severity of a range of chronic and acute diseases, including asthma, pneumonia, bronchiolitis, croup and chronic obstructive pulmonary disease (COPD).
“Pfizer has upped its bid and there’s two expected outcomes which are good,” Power said.
“If the results from a trial which are due out shortly are good then the price goes to 20.7 cents per share and if they are not as expected Pfizer is still happy to pay 14.6 cents.
“It’s good Australian technology which came out of the University of Queensland and it shows that the big pharmaceutical companies are out there looking for good tech.”
Sleep treatment medical supplies company ResMed (ASX:RMD) is Power’s stock of the week. ResMed announced it was increasing its out-of-of-hospital-care software division this week, buying Germany’s MediFox Dan for US$1 billion (A$1.45 billion).
The transaction will enable ResMed to enter the German out-of-of-hospital-care market which is seeing greater demand due to severe staff shortages.
The acquisition is the third for ResMed in the software space and largest. In 2016, Resmed purchased Brightree which focuses on supporting pharmacy and home medical equipment providers. In 2018 MatrixCare, which operates largely in the hospice and life plan communities sectors.
Power said Medifox Dan provides critical software and data solutions, such as billing and admin, clinical care plans, documentation and personnel planning across three out-of-hospital care verticals – home health, skilled nursing, and outpatient therapy.
“We talk about this theme in healthcare of hospitals without walls and ResMed continue to build out that thematic,” he said.
“They’ve paid a fair bit of money for MediFox Dan but by all reports they are pretty confident of getting a good return on that investment and it opens up another vertical in another region for them.”
Power said ResMed has plenty of cash and is continuing to benefit from a rise in demand for its sleep-apnea devices following its competitor Philips have to recall millions of continuous positive airway pressure (CPAP) and ventilator machines in July 2021.
“The Philips recall created some pretty strong profits in cash for ResMed which they are now putting to work,” he said.
“They are a good example of companies getting on with their work no matter what is happening in the broader market.”
Morgans has an Add rating and 12-month target price of $37.95/share. It is currently trading at $28.42, having fallen 21.45% in the year-to-date amid broader market sell offs.
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. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.