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Two Medical Stocks from Down Under
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Two companies from down under, ResMed (RMD) and Fisher and Paykel Heathcare (FSPKF), are among the leaders in supplying the expanding market for CPAP equipment for sleep apnea sufferers. Both companies have excellent growth prospects and both stocks are recommended.
In particular, with their main manufacturing facilities in Australia (ResMed) and New Zealand (Fisher and Paykel), and their primary sales market the US, both companies stand to be significant beneficiaries of recent dollar strength.
Sleep apnea is believed to afflict as many as one in five adults to some degree. It is particularly prevalent among the obese and among heavy smokers and drinkers. It is also present in high numbers in sufferers of drug-resistant hypertension, congestive heart failure and type 2 diabetes.
However, proving the link to these afflictions has not always been easy, and ResMed in particular is working to overcome this. At this month's annual conference of the European Respiratory Society it announced the launch of a four-year $12 million study into how sleep disorders affect heart failure patients.
In any case, a lack of awareness of the problems, even among medical professionals, means that - according to some estimates - only about 10 per cent of sufferers have been receiving appropriate treatment.
This is changing, with Medicare and private health insurers increasingly willing to cover aspects of the problem, which is a tremendous incentive for the relevant stocks.
Of the two companies, ResMed has shown by far the better longer-term performance, with sales rising from $339.3 million in the June 2004 financial year to $835.4 million in June 2008, and net income up from $57.3 million to $110.3 million. It also has a relatively pure exposure to sleep apnea equipment.
Its June 2008 accounts showed net cash holdings of more than $180 million. It is increasingly looking to source components in low-cost Asian countries, and may move some production there.
Fisher and Paykel - which makes other medical devices, as well as sleep apnea equipment - reports its results in New Zealand dollars, but also provides US dollar equivalents. Sales rose from $132.1 million in the March 2004 year to $271.5 million in March 2008. However, net income has gone from $33.6 million to $26.8 million in the same period, as the company has struggled to control costs.
It plans a major move to offshore production, in either Mexico or a low-cost Asian center. This has the potential to provide a sharp boost to profits, at a time when the company claims to be gaining market share. But in the meantime ResMed clearly stands out as the preferred stock.
Disclosure: No positions
October 14th, 2008
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