Article: Defensive buying opportunites from falling dollar

Extract below from (full article available via link) {Disclosure: I hold both RHC and CSL shares and do not hold stock of others mentioned}:

http://www.thebull.com.au/premium/a...g-opportunities-from-the-falling-dollar-.html

Defensive Buying Opportunities from the Falling Dollar

31.08.2015

Investors with nerves of steel and the belief rough times open buying opportunities should be looking for defensive stocks to weather the storm, should it continue or worsen.  The hottest sector on the ASX remains and has been for some time Healthcare.

What’s more, some of our biggest and best Healthcare stocks are global in scope, benefiting from the fall of the Australian dollar.  With the recent drop below 72 cents against the US dollar, it appears that the target of 70 cents from some analysts may well be in the offing.  Deutsche Bank is predicting a fall to 60 cents.  Here is a year over year chart for the AUD vs the USD.


This suggests improved profitability in three ASX Healthcare Stocks deriving a majority of their revenues from the US market, CSL Limited (CSL), ResMed INC. (RMD), and Cochlear Limited (COH).  However, the AUD has also fallen against both the Euro and the British Pound Sterling (GBP) as shown in the following two charts.


This bodes well for another top ASX Healthcare stock, Ramsay Healthcare (RHC), the private hospital operator with a presence in France and the UK.  However, recent panic in global share markets suggest “China-watching” trumps currency fluctuations.  The hard truth is no one knows how much the Chinese economy will slow down, although very few still believe it is not cooling off.  This suggests the most rational play right now would be to look for the most defensive stocks within the Healthcare Sector.

We think this puts CSL Limited and Ramsay Healthcare to the forefront as the most defensive healthcare stocks money can buy.  They offer potentially life-saving products.

This is not to say Cochlear and ResMed are not solid stocks worthy of buying on dips; only that CSL and Ramsay appear to be the better plays given the uncertainty over a global slowdown driven by a “hard landing” in China.  The following table includes historical performance of total shareholder return as well as historical earnings growth and a two year earnings forecast.

	Column 1	Column 2	Column 3	Column 4	Column 5	Column 6	Column 7	Column 8
0	Company​ (Code)​	Closing Share Price​ 27 August​	Closing Share Price​ 24 August​	5 Year Earnings Growth​	10 Year Earnings Growth​	5 Year Total Shareholder Return​	10 Year Total Shareholder Return​	2 Year Earnings Growth Forecast​
1	CSL Ltd​ (CSL)​	$91.85​	$87.43​	+15%​	+22%​	+25.5%​	+25.5%​	+12.4%​
2	Ramsay Healthcare​ (RHC)​	$63.68​	$58.14​	+16.9%​	+16.9%​	+36.9%​	+24.6%​	+21.3%​
3	Cochlear Ltd​ (COH)​	$84.79​	$83.48​	-1.5%​	+6.4%​	+7.8%​	+10.6%​	+16%​
4	ResMed Inc.​ (RMD)​	$7.29​	$7.15​	+16.9%​	+17.5%​	+17.8%​	+12.4%​	+7.4%​

Investors with courage and conviction who bought any of these stocks on what is now being called “Black Monday” have already been rewarded.  RHC rose close to 9%, driven by yet another stellar Full Year Earnings Report with a 49.9% revenue increase and a 27% rise in profit.  The company is now the market leading private hospital operator in both Australia and France.  

Analysts have cautioned for some time that RHC is a growth stock trading at levels requiring near perfect execution to sustain the share price.  To date, Ramsay has delivered.  The following chart shows Ramsay’s stock price appreciation since it began trading on the ASX in 1997.

Note that Ramsay’s two year earnings growth forecast is substantial at 21.3%.  The company’s strategy includes organic growth through favorable demographic trends and continuous improvement of existing facilities; capacity expansion through development of “brownfield” sites; public/private hospital collaborations; and acquisitions.  Ramsay already has a presence in Malaysia and Indonesia and on 21 May announced a joint venture to expand into China.  

If you look at the 10 year+ price movement charts for CSL and RHC you will not see much downward movement as a result of the GFC.  While this is far from hard evidence, it does seem to support our earlier contention that consumers are less likely to forego life-saving treatments in tough times.

Goldman Sachs recently noted that ASX-listed “offshore earners” had risen 19% as of 24 July of this year, compared to a 5% jump in the ASX 200.  The strategy of looking at defensive offshore earners seems to make sense.  However, some of these earners, such as packaging companies Amcor Limited (AMC) and pallet and reusable container provider Brambles Limited (BXB) could suffer if a perceived global slowdown morphs into a global recession. CSL and RHC may be safer plays.