ScoPo's powerplays: Morgans' healthcare picks for 2021

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.

Themes of the week

In 2020 the healthcare sector gained 3.0 per cent while the ASX200 dipped 1.5 per cent, Scott Power notes.

“A modest outperformance by healthcare. It wasn’t like some of the other sectors that had massive rebounds, but it was solid,” he said.

As of Thursday afternoon, healthcare was down 2.2 per cent for the week, while the ASX200 was up 2.2 per cent.

“The rotation out of larger healthcare names continues,” Power said.

Big healthcare names like CSL (ASX:CSL) have been weaker given the strength of the Australian dollar and concerns about the coronavirus situation in the United States, where CSL collects most of its blood plasma for conversion into lifesaving medicine.

Still, that presents a buying opportunity for fans of Australia’s largest biotech company, whose shares were trading Thursday at $275, down from $313 on November 20.

“CSL’s share price has been soft over the last couple of months,” Power said. Morgans has a $306 price target on the company, and Power is happy to get back into it at these levels.

2021 powerplays

Power and his team at Morgans have some other picks – these ones, for the whole year.

In the mid-cap space, his pick is ResMed (ASX:RMD), whose shares gained 24.3 per cent last year.

The medical equipment company is the best placed to benefit from a trend towards providing services remotely.

Power also sees continued pick-up in enterprising imaging, the business of moving images such as radiology scans across hospital departments and networks.

Morgans’ picks there are Mach7 Technologies (ASX:M7T) and Latin American player ImExHS (ASX:IME).

Next up is Impedimed (ASX:IPD), a Brisbane company that makes noninvasive medical devices to detect a patient’s fluid levels that Power talked up repeatedly last year. The company has private payors on board and is coming off a solid quarter,

While Morgans doesn’t officially cover these companies, Power likes Neuren Pharmaceuticals (ASX:NEU), Opyl (ASX:OPL) and Swift Media (ASX:SW1).

Neuren is moving out of Phase 1 clinical trials and into Phase 2 ones as it investigates two possible treatments for five serious early childhood neurological disorders, Power said.

He’s is also impressed by Rhythm Biosciences (ASX:RHY), which has been a big mover as it progresses its bowel cancer blood test.

“It’s just going on an absolute tear, they’ve done very well.”

Telix Pharmaceuticals (ASX:TLX) also had a very successful fourth quarter, with its shares up 127.7 per cent on the back of several positive announcements.

Outlook for 2021

Power notes that capital raisings continued in the fourth quarter, with $633 million raised, including 30 secondary raisings and three IPOs.

Morgans was lead manager for one of those floats, Control Bionics (ASX:CBL), which listed last month following a $15 million IPO at 60c a share. Its shares were trading at 96c on Thursday.

Overall the healthcare space raised $1.7 billion in 2020, Power said.

“It was a prolific year for capital raisings, and that tells us two things.

“First, there’s clearly an appetite out there for biotech or medical device related stocks.

“And second, a lot of these companies are now well-funded.”

That means he expects the market to reward companies that are successful with their key milestones such as clinical trials, regulatory approvals or first sales.

Companies should begin issuing their second-quarter reports in just a few weeks, Power notes.

Kiwi breast density software company Volpara Health Technologies (ASX:VHT) has already reported better-than-expected second-quarter sales, despite the difficulties caused by the pandemic.

Overall, Power said, 2020 ended on a very positive note, “and we think that momentum is going to continue into 2021.

“From the healthcare team’s perspective, we’re very excited for the new year.”

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