Only a quarter of the healthcare stocks on the ASX under $50 million in market cap have gained ground this year — which is either good or bad depending on your perspective.
Analysis by Star Investing has found that of the 80 healthcare stocks on the ASX, only 21 of them have managed to gain ground in the past year — suggesting that the sector has underperformed.
Taken as an average, microcap healthcare stocks have lost 17.8 percent despite some impressive numbers up top.
Over the same time period, the all ordinaries has gained about 7 percent.
But, does that mean you should think twice about investing in Australia’s microcap healthcare space?
Well, that depends on your perspective.
Remember, none of the following is investment advice — always consult a professional before making investment decisions.
The case for investment
A lot of the companies with a market cap under $50 million are early-stage — if they were already commercialising their research, they probably wouldn’t have a market cap below $50 million.
So it makes sense that a majority of the stocks on the list haven’t gained in the past year.
Being early-stage stocks with a relatively low buy-in cost, it means you can accrue many more shares that you would otherwise be able to do.
Coming off a low base, it could even be argued that the healthcare sector offers some attractive options for value investors.
Meanwhile, the quality of the companies themselves isn’t all that bad — with great research houses in Australia meeting an increasingly international outlook.
Healthcare stocks, almost by definition, can take a fair while to commercialise or scale — leading shareholders to express frustration at times.
It’s about that old Warren Buffett maxim: be greedy when others are fearful.
Besides, with healthcare costs going up all the time and the world’s population steadily increasing and greying, if there’s one sector you should be long on it’s healthcare.
Besides, if you are able to pick a winner from the sector you should be rewarded: the average gain for companies that did gain was 61.48 percent over the past year.
The average loss for companies that didn’t was 46.03 percent.
The case for divestment
There’s hope, and then there’s delusion.
When three quarters of the sector aren’t pulling their weight, maybe that’s just not a good sector to get involved in.
The fact that 59 companies out of 80 didn’t gain during the past year when the broader market returned over 7 percent probably speaks volumes.
The market, at least in the healthcare sector, appears to not have patience for early-stage small companies in the sector — and whether that’s wise or not, their performance has reflected this.
If you were to throw a dart at this list, you’d only have a 1 in 4 shot in hitting a winner. If you’re after those sorts of odds, you may as well take your money down to the track.
But, don’t take our word for it: take a look at the list below and make up your own mind:
– List prepared by Nick Sundich, 22 May 2019.
This content does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
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