You might have noticed that healthcare is quite a big issue in 2020. But while the Covid-19 crisis is pummelling so many shares in the stock market crash, how can you profit from the sector? Here are two FTSE 250 stocks that I think could reward you well in the coming decades. They approach the healthcare business in two different ways, ways that I see as complementary.
The first is Mediclinic International (LSE: MDC), which released a first-half update Thursday, ahead of full results due on 12 November. The private hospital group, which has operations in South Africa, Namibia, Switzerland and the United Arab Emirates, spoke of a “robust first-half operating performance“, despite the Covid-19 impact.
Chief executive Dr Ronnie van der Merwe said “We have seen a good rebound in trading since May 2020, particularly in Switzerland and the United Arab Emirates, as the initial peak of the pandemic passed“.
Tough first half
Mediclinic has certainly had a tough year so far, along with so many in the FTSE 250. Reported total revenue is down 7%. Earnings per share, which came in at 9.9p for the first half last year, is set to come in just “marginally positive” this time. Mediclinic says it had £450m in cash and available facilities at 30 September, and that’s something I’d inspect carefully when we get the full-year results. The balance sheet is what matters most for companies under pandemic pressure this year.
Mediclini, which owns 29.9% of Spire Healthcare, has been through a bad patch with falling earnings over the past couple of years. But after the big fall forecast for the current year, analysts are predicting a serious rebound for the 2021–22 year. That would put the shares on a forward price-to-earnings multiple of 12. I think Mediclinic has long-term growth potential, and I’d buy.
FTSE 250 REIT
My second pick provides a very different aspect to healthcare investment. It’s one I’ve liked for some time, Primary Health Properties (LSE: PHP). Primary Health is a FTSE 250 real estate investment trust (REIT). It invests in healthcare properties, primarily GP surgeries, and lets them on long-term leases.
Earnings progress has been slow in recent years, but analysts see 20% growth this year with a modest extra next year. The Primary Health Properties share price is down 9% so far in 2020. But over the past two years we’re looking at a 30% gain.
On top of that growth, Primary Health has been one of the FTSE 250’s steadiest dividend providers. And that’s where an investment trust has an advantage. A lot of companies will pay a fixed proportion of earnings as dividends each year. But trusts will typically hold some back in good years to even things out in poorer years. Of course, individual investors can do that themselves with the dividend cash they earn. But a less erratic dividend stream can help keep sentiment sweeter and reduce share price volatility.
I’ve long been a fan of investment trusts, REITs or otherwise. And if you’re investing for FTSE 250 income, I’d suggest you consider Primary Health Properties for your buy list.
Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Primary Health Properties. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.