stock head just picking up the theme from earlier today. I suppose if UBS is turning bullish on healthcare, maybe someone can tell them to turn their bot around to head up instead of down.
We're keen on leading ASX health stocks and that's no bull, says UBS. Pic via Getty.
- UBS reckons healthcare will fare better than any other ASX sector
- Bell Potter says Monash IVF has fertile recovery prospects
- Telix wins FDA usage expansion for prostate cancer imaging
Financial giant UBS has declared that enough is enough with lagging healthcare valuations – and now believes it will be the best performer of any ASX sector.
In bestowing ‘pet sector’ status, the firm says that healthcare stocks are the cheapest they have been in 10 years.
This follows three years of remorseless earnings per share (EPS) downgrades.
The firm opines healthcare now offers the best EPS growth of all ASX sectors, with an expected increment of almost 20% in the 2025-26 year.
The S&P/ASX 200 healthcare index has fallen 5% over the past 12 months and is down 7% year to date.
In contrast, the broader ASX200 index looks to be finishing the year around 9% higher.
“Investor sentiment towards the healthcare sector has broadly cooled over the last year, with some marked deterioration seen across many stocks,” UBS says.
“Cochlear (ASX:COH)in particular has seen investor apathy build over the last year, which represents a significant change of views versus [12 months previously].”
The firm has upgraded Cochlear to a ‘buy’ for the first time since 2011.
ResMed (ASX:RMD)also joins the favoured list, alongside market faveTelix Pharmaceuticals (ASX:TLX)
“Challenging market conditions”
Meanwhile, Bell Potter notes that “challenging market conditions” have mostly persisted for small and mid-cap healthcare stocks.
Of the 35 stocks the firm covers, only nine are trading at a premium to their December-end values.
“The macro factors driving this broader performance include the uncertainty arising from leadership changes at the US Food and Drug Administration (FDA) and proposals to lower prescription drug price in the US,” the firm says.
“Consequently, institutional investors have largely adopted a wait-and-see approach.”
However, Bell Potter expects new drug approvals and earnings growth “to lead to a wave of new capital flowing into the sector”.
Oh baby! That’s an interesting call
Bell Potter’s three favourite healthcare stocks include the troubledMonash IVF Group (ASX:MVF), if only because the share price reaction to the company’s embryo-woes looks excessive.
In the broker’s half-year run-down of best buys across all sectors, the firm’s other two healthcare picks are Telix – that name again – andNeuren Pharmaceuticals (ASX:NEU).
Monash IVF’s two reported embryo transfer errors resulted in the June 12 resignation of CEO Michael Knaap.
Prominent silk Fiona McLeod is carrying out an independent probe into the snafus.
Meanwhile, Monash IVF shares have halved since January.
Bell Potter says Monash IVF trades on a multiple of six times. This compares with 12.5 times for nearest rival Virtus Health in 2022, when it was taken over by BGH Capital and delisted.
“The depressed share price may also invite a bid for the company adding corporate appeal to a deep value investment thesis.”
The firm reckons Monash IVF is worth $1.15 a share, more than twice its current valuation.
On safe ground
With Telix, Bell Potter says revenues from its lead prostate imaging product Illucix should continue to grow as it wins US market share.
The FDA recently approved another prostate imaging agent, Gozellix, and should green light the kidney cancer imaging product Zircaix in the September quarter.
Neuren is making hay from US sales of its Rett syndrome therapy Daybue, via partner Acadia.
But the firm believes the bigger value driver is Neuren’s separate compound NNZ-2591. This is for the rare ‘orphan’ diseases Phelan-McDermid, Angelman, Pitt Hopkins and Prader-Willi syndromes.
NNZ-2591 is thought to be more effective and less toxic than Daybue – and the market could be bigger.
Neuren reported positive phase II trial results for Phelan-McDermid and expects to kick off a phase III study within months.
With $340 million of cash, Neuren has oodles of dosh to fund the 160-patient trial.
In fact, the company is undertaking a share buyback to soak up stock at discounted levels.
Bell Potter also rates MesoblastMesoblast (ASX:MSB),Clarity Pharmaceuticals (ASX:CU6),Immutep (ASX:IMM)andEBR Systems (ASX:EBR)as speculative buys.
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