Sat. Jul 2nd, 2022

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Ask A Fund Manager

The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In this edition, Catapult Wealth portfolio manager Tim Haselum explains why he loves the look of two healthcare ASX shares at the moment.

Hottest ASX shares

MF: What are the two best stock buys right now?

TH: The two that we like at the moment are Pro Medicus Limited (ASX: PME) and CSL Limited (ASX: CSL). They’re both very telling that they’re both in the healthcare space, right?

Pro Medicus, it’s a high [price-to-earnings ratio] PE, growthy type stock. It may have more downside, but certainly given it’s a pretty quality company, we think it makes sense to just ease an average into it.

This is a leading provider of imaging software that’s aggressively expanded overseas, especially the US. About 70% of revenues are from the US. It’s basically a valuation issue. The business is fantastic. The last reporting revenue was up 40%, EBIT was up 54%.

It looks like they’re the best product on the market in terms of imaging, right? For us, the expansion is just a waiting game for more hospitals to come onboard and that’s more around product life cycle and renewals. Once these other major hospitals look at their product suite, well then maybe Pro Medicus continues to win contracts.

We think that even though it’s a high PE stock and yes, it’s getting smashed, well, if this can keep on going, this is a pretty good entry point.

And CSL – I mean, everybody knows CSL, right? It’s a growth stock that’s starting to look more like value. But you think about what they’re doing, it’s life-saving and non-discretionary healthcare.

Even though some healthcare’s pulled back recently, when you think about the US [going] to a recession or whatever happens, what’s likely to still have good operating earnings? It’s CSL, and we know the story of some things are holding back, obviously currency’s not good, but we’ve got issues with supply for blood due to migration and borders, and demand for blood due to elective surgeries being postponed.

But they’ve got a great track history of all these acquisitions where the market says “Oh, you paid too much” [but] they turn it around. They’ve got a really good history of really adding these businesses that are aligned to their philosophy and turning them into gold.

Both of those, even though more on the higher PE side, we think they’re good buys to slowly ease into it.

MF: Pro Medicus still has a PE ratio of more than 100, even with the share price cooling down. But you feel like the business has enough growth in it that it will catch up to the share price?

TH: What it’s done, even during the worst of COVID, when hospitals were completely clogged up, they won contracts. That’s amazing. If they could do that in those times, imagine what they can do when things are back to normal.

It just seems across the world, when we speak to research providers, when they speak to the people on the ground, they love the product. The product is good. And it’s one of those things where you look at the numbers on one side, but you’ve got to look at the other side. Are people positive on it? The people who are actually in the know and actually using it, do they like it? They do. It does look like they have the best product.

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