Improve the Health of your Portfolio

I have talked at length about opportunities which exist in the agriculture and dairy markets exporting to Asia, with particular focus on China. We have resources which will be outstripped by demand over coming years presenting a major opportunity for Australian investors. But this opportunity goes well beyond milk and beef.

What if I told you that you could buy a health company pursuing similar levels of aggressive growth in this region? You are probably getting a little bit excited. Both Australia and China are characterised by an aging population, reliance on private health is increasing and health is a sector that is generally undeterred by economic cycles.

Ramsay Health Care Limited (ASX:RHC) is the company we are talking about today. Punters are putting these guys in the blue chip basket as their market capitalisation has exceeded $13bn. This firmly places the group in the top 30 companies listed on the ASX. With operations across 5 countries RHC have over 200 hospitals and over 60,000 employees.

Obviously for retail investors like us I have been critical of blue chip stocks. But this is different. Mainly because of that global expansion I have mentioned above, and evolving demographics which leave RHC front and centre for significant growth.

The problem to date, for investors has been the relatively low yield from the dividend. Working off this week’s prices the yield is just over 1.5%. Despite this the stock price has been climbing. November 2010 saw the price tracking at $15.58, but 5 years on the start of December the group reached $67.50, for a 333% capital gains return.

The ABC reported that China currently have 200m citizens over the age of 65. That is approximately 15% of the population. Massive numbers and huge opportunity. The expected health expenditure is significant, as these 200m Chinese citizens will put greater demand on health services supplied by organisations like RHC. That is the immediate term. But the growth of the over 65s market is massive, we are talking 100% growth within the next three decades.

The recently announced, and funnily named CHAFTA (China Australia Free Trade Agreement) is paving the way for RHC to establish, and operate hospitals right in the middle of this booming market. The improved access and stronger business ties give Australian companies a strong advantage against other global players. It has been announced that RHC is currently in talks with a China based company in establishing via joint venture more operations in China. Watch this space.

The significance is felt all over the world. We are living longer and finding new ways to treat disease and illness. Here in Australia the aging population is considered unsustainable in how we currently operate. The government has already flagged greater reliance on private health operators like RHC. There are few operators which have the ability to build the scale and compete in time to face the influx making RHC central to handling this ageing population.

All that sounds great. But the price is high. Despite this I will be watching RHC closely as a potential long term stock. Growth outlook is solid, and if you hang onto it long enough, maybe you will be able to afford to be a customer once you reach the golden 65+ age bracket.