ScoPo’s Powerplays: Investors become a 'little more picky' as markets continue to push ever higher

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.

Theme of the week

At the time of writing, the ASX 200 Health Index (XHJ) is up by 3% for the week, compared to the broader index which is down by 0.20%.

As markets around the world reached record highs, investors are starting to become more discerning, according to Power.

“I think people are now becoming a little more picky in what they invest in, as stock markets continue to push ever higher,” he told Stockhead.

But he believes there are still pockets of the Health sector that are worth buying.

For example, Morgans has just increased its 12-month price target on ImpediMed (ASX:IPD) from 20.7c to 24.7c. The IPD share price is currently at 19c.

Part of Morgans’ decision to upgrade is IPD’s solid Q1 results, where revenue increased by 71% accompanied by the successful completion of a $35 million placement and $5 million SPP.

“We believe the capital raised sets up the company to achieve a break-even position over the next two years,” says Power.

“We maintain our Speculative Buy rating on IPD. We think there are numerous catalysts that will see investor interest increase in the stock.”

The company continues to make progress to commercialise SOZO, its proprietary BIS (bioimpedance spectroscopy) technology that measures and tracks critical information about the human body non-invasively.

Power’s take on other ASX health stocks this week

Power noted the move in Health sector this week was mainly driven by the 2% rise in CSL (ASX:CSL) share price (no specific news), which makes up a big component of the index.

At the smaller end of town, Paradigm Biopharmaceuticals (ASX:PAR) share price rocketed by 21% on Wednesday, after announcing an FDA clearance for its knee osteoarthritis clinical trial.

The clearance has now allowed PAR to proceed with a Phase 3 trial for PPS/Zilosu, an injectable drug that treats pain associated with the knee condition.

“However, looking forward we expect an update on trial cost and timeline revisions to temper the relief rally, along with increased capital requirements.”

Because of that, Morgans has downgraded PAR to a Reduce (from Hold), with a 12-month target price of $1.68, vs the current price of $2.40.

Other stocks with significant announcements this week include MedLab Clinical (ASX:MDC), which was up by 16% so far this week.

MDC revealed the US patent office has granted patent protection for NanoCelle, a technology that creates water-soluble nanoparticles that optimise medicinal spray delivery to the lungs.

The technology is ideal for people who have difficulties swallowing, fear needles, or experience gastrointestinal complication which can limit absorption.

The company was also awarded an “Advanced and Overseas Finding” R&D status for its NanaBis development by AusIndustry, which means that it could claim a tax rebate on the $27m it has spent on developing NanaBis.

NanaBis is a drug that was developed for cancer bone pain as a viable alternative to opioid use.

Another stock that caught Power’s attention this week was ResMed Inc (ASX:RMD), which reported a better than expected Q1 NPAT of US$222m.

Its sleep/respiratory devices sales were strong during the quarter, supported by gains resulting from its competitor Philips’ device recall earlier this year.

FY22 guidance was maintained, with US$300-350m in incremental revenue expected from the recall.

“While margin headwinds are expected to remain in the near term, we continue to believe the overall fundamentals remain sound and the company well positioned,” Power said.

“Pleasingly, looking through all the ebbs and flows, we estimate underlying and organic device revenue growth to be at least 20% in the second half,” he continued.

ScoPo’s Powerplay

Power’s stock of the week is Nanosonics (ASX:NAN).

The company has successfully developed and commercialised a unique automated disinfection technology, which was the first major innovation in disinfection for ultrasound probes in more than 20 years.

“There’s a bunch of companies that are benefiting from the US economy reopening, and Nanosonics is one of them. With lockdown being lifted, they’re starting to get greater access to the hospital network over in the US, and that’s positive,” said Power.

Although Morgans has recently downgraded NAN’s 12-month target share price from $7.26 tp $6.97, the recommendation was upgraded to Add (previously Hold).

Power is expecting some upbeat commentary from NAN leading into its annual general meeting (AGM) on 19 November.

“We expect AGM commentary around continuing its installed base growth, and an update on the clinical and regulatory progress for the CORIS,” Power said.

“Despite the lower valuation and target price, there is still over 15% upside to our target price which provides the opportunity to upgrade the recommendation.”

Nanosonics is trading at $6.20 at the time of writing.

Nanosonics share price today:

The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.

Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.

At Stockhead we tell it like it is. While Volpara Health is a Stockhead advertiser, it did not sponsor this article.