ScoPo’s Powerplays: Healthcare’s game is off, but a comeback is possible
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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 health and gives his ASX powerplays.
The Australian Open has kicked off this week with world number one anti-vaxxer Novak Djokovic booted out of the country after having his visa cancelled for a second time and an almost two-week legal battle.
And while tennis fans globally are eagerly watching to see how the Aussie grand slam comes back from the flurry of controversy, health and life sciences stocks have also been having a week to forget.
While the broader market has had a shaky week, down ~2.05, it’s still a set up on the healthcare index which has fallen ~2.82% for the week.
Inflation concerns and fears of rate hikes have affected the health sector’s game, with Morgans forecasting interest rates hikes in 2022.
“We think there will be a couple of steps up in terms of interest rates both from the Federal Reserve in the US, probably three or four in the US and one or two from the RBA over here,” Power said.
“We were hoping for a bit of a rally into Christmas (for healthcare) and that didn’t materialise which was disappointing.
“There’s been a switch out of higher PE stocks into more value-oriented stocks and that’s been driven from a macro picture.”
The healthcare sector has clearly not had a good preparation for its 2022 game and looks like it could be facing even more of a battering.
“The market has rotated from those high PE growth names to more value-orientated stocks and away from companies still making losses and that is continuing,” he said.
“There’s been a further sell off in healthcare this week.”
By Thursday blood specialist CSL (ASX:CSL), which makes up a large part of the ASX healthcare index, was down ~4%.
Health imaging company ProMedicus (ASX:PME) continued the falls among the top seeds, down ~8%, while hearing implant giant Cochlear (ASX:COH) fell 4.7%.
In the small caps, growing medtech Volpara Health Technology (ASX:VHT) also felt pressure this week with its price tumbling 7.6%.
The healthcare index and stocks made an attempt at a late recovery, with both slightly up heading into the weekend on Friday.
Bucking the trend was Neuren Pharmaceuticals (ASX:NEU), which lifted 6.8% after recently reporting positive results from a Phase 3 clinical trial of its lead asset Trofinetide against rare disease Rett Syndrome.
“Neuren is a story we’ve had very high hopes for and they’ve produced some very good clinical data and we think they are set for a very big 2022,” Power said.
“They’re looking to partner out their rest-of-world rights for Rett syndrome.”
As we enter quarterly reporting season, and half-yearlies, Power said investors will monitor the performance of healthcare stocks looking for value.
Power is watching Volpara, with Morgans recently putting out a research note on the company and increasing its 12-month target price to $1.94. Volpara specialises in the early detection of breast cancer.
“The key point of the research was to put value around some of the data they are collecting,” Power said.
“Volpara talks about having 51 million images across 5 million women and importantly what they have is 1 million pieces of longitudinal data, so from the same woman (they have) more than one mammogram to see the changes over time.
“That has particular importance for detection of the cancer, and they are now starting to link in genetic testing, so a very powerful data set is being built and we think that’s not reflected in the share price.”
He said Volpara is due to report its third quarter cash flow on January 31 and was expecting a solid result.
“We are hoping the share price reacts positively to that,” Power said.
In other healthcare sector news for the week, Power noted diagnostic and therapeutic company Telix Pharmaceuticals (ASX:TLX) had gone into a trading halt pending an announcement of a capital raise.
“This share price has really bucked the trend and is up 8% since the beginning of the year,” Power said.
“They have not only diagnostics but are developing a range of therapeutics for a range of different cancers with their focus on prostate cancer.”
ASX-listed specialist medical diagnostics company Universal Biosensors (ASX:UBI) launched its Sentia Malic Acid Test into the international wine market.
Malic acid is a time-consuming test winemakers do, often requiring samples to be sent to a lab. In contrast, the Sentia Malic Acid Test will give winemakers an accurate measure of malic acid in their wine within ~1 minute.
“Their DNA or genesis is healthcare but what they are doing is moving into broader applications and their share price has done really well too this year,” Power said.
Power’s pick of the week is ProMedicus with the share price currently ~$45 having come from recent highs of ~$64 as the market moves away from high PE to value stocks. Morgans has a 12-month target of $54.49 on the stock with it now at the lower end of its six-month range.
“ProMedicus has been a very successful company with a market cap at around $6 billion at the moment,” Power said.
“It’s a good example of a share price which has rallied strongly and come off as the market rotates away from high PE stocks to value.
“The ProMedicus share price has fallen in the past couple of weeks from around $64 to $45 so it’s definitely back into buying territory.”
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