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Calling ISA investors! A FTSE 250 turnaround stock I’d buy for 2020 and beyond

As I commented in a recent piece, one wise strategy for share investors to adopt for 2020 is to purchase shares in the defensive healthcare sector. Forget about the geopolitical and macroeconomic worries damaging global growth in the coming year. The terrific earnings visibility of these firms in troubled times makes them terrific buys for right now.

Then I tipped primary healthcare facility developer Assura, but another top healthcare stock has come to my attention again today: FTSE 250-listed Convatec Group (LSE: CTEC). Why? Its share price has soared on signs of improving trading conditions moving into the new year.

Reassuringly solid

On Wednesday ConvaTec — a leading manufacturer of ostomy devices like colostomy bags, as well as wound care products — soared to 12-month peaks after putting out bright business numbers for the three months to September.

Revenues clocked in at $462.9m, up 2.4% year-on-year, or 4.6% on an organic basis and signalling a serious sales uptick in recent months. By comparison, turnover was down 3.5% in the first six months of the year and flat organically.

ConvaTec’s results were flattered by some weak comparators, but even so, those third-quarter numbers sailed past all expectations. Organic growth was reported across all four trading units and ranged from 3% at its Ostomy Care division to a mighty 8% at Continence and Critical Care.

For the first nine months of 2019, ConvaTec’s organic sales were up 1.5%, prompting the business to affirm its full-year growth target of 1% to 2.5%.

The road to recovery

ConvaTec’s latest release is the second robust report in just three months, leading to hopes that it’s finally on the mend after a tumultuous couple of years.

The FTSE 250 firm had warned on profits at the third-quarter stage in both of the previous years, ConvaTec scribbling out its prior forecasts last time out after sales troubles with its biggest Infusion Devices customer, allied with serious difficulties at its Advanced Wound Care division. Then in February, it fell again after advising that it continued to miss its targets.

The release of two solid trading updates on the bounce, showing signs of improving sales momentum, has raised hopes that it has finally turned the corner. And I’d argue that there’s plenty more to be excited about. Recent management changes have seen former Eli Lilly veteran Karim Bitar parachuted in as chief executive to beef up the boardroom. Meanwhile, the launch of its three-year, $150m, transformation scheme launched last winter should help to give sales an extra boot up the backside and deliver significant cost savings.

Bag a beauty

Now, City analysts had been forecasting a 16% earnings slump in 2019 in the run-up to this week’s update, and for another drop — albeit a fractional 1% one — for next year. However, in light of recent news flow, it’s likely that these estimates could receive significant upgrades, and in particular, 2020’s targets as the upcoming year progresses.

Right now, ConvaTec trades on a slightly toppy P/E ratio of 20.3 times for 2020. But I’d argue that given the strong possibility of forecast improvements, the huge potential of its self-help plans, and its excellent long-term sales outlook because of booming healthcare investment the world over all make the business worthy of such a premium. It’s a top buy today, in my opinion.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.