As the population grows older in Canada and around the world, Canadian healthcare companies are going to be relied upon to supply medications and products to Canadians and customers worldwide.
The major benefit to this from an investing standpoint is the fact Canadian healthcare stocks will inevitably post higher revenues and, as current investors hope, more profits.
According to the Government of Canada, in 2014 there was approximately 6 million Canadians that were aged 65 or older. This represented about 15.6% of the population. The article goes on to state that by 2030, less than two decades later, this number will balloon by over 50% to 9.5 million.
The average life expectancy of a Canadian woman is also expected to rise to a whopping 86.2 years old!
Rapid spending means good things for Canadian healthcare stocks
According to CIHI, Canadian healthcare spending reached a whopping $264 billion in 2019. Health expenditures are also expected to make up nearly 12% of the country’s GDP.
With considerable potential for spending bound to carry into the future, we thought it would be useful to bring to your attention 4 Canadian healthcare stocks we feel have the potential to provide out sized returns.
Our top Canadian healthcare stocks for 2020 and beyond
Knight Therapeutics (TSX:GUD)
Knight Therapeutics (TSX:GUD) is a specialty pharmaceutical company that has operations globally. The company develops, acquires, markets and distributes pharmaceutical products, but has a unique way of doing so.
Knight acquires drugs from larger pharmaceutical companies that don’t want to negotiate the approval process for smaller nations much like Canada. Most recently, the company spent nearly $370 million to purchase Grupo Biotoscana, a Latin American specialty pharma.
For a company to have the business model Knight does, they need a significant amount of cash and very little debt. Fortunately, that is the exact position Knight is in.
With more than $600 million in current assets ($319 million of that being cash and cash equivalents) and only $58.2 million in current liabilities, the company has a rock solid balance sheet. Which, as we said, is perfect for a serial acquirer.
An investment in Knight is ultimately an investment in Jonathan Goodman. Goodman has been involved in the pharmaceutical business his entire adult life, and developed Paladin Labs. He ran the company for two decades, earning investors over 27% a year.
Keep in mind however, investors in this Canadian healthcare stock will need to be extremely patient. Knight has slowed down its pace of acquisitions and it is clear the company is looking to prepare for large scale acquisitions in the future.
Analysts have a 1 year price target of $9.58 on the pharma company, which signals around 25% upside at the time of writing. Investors who believe in Goodman strongly believe that Knight is one of the best stocks in Canada right now.
Mkt Cap: $1.04 Billion
YTD Gains: 0%
Fwd P/E: 24.71
1Yr Price Target: $9.58
Sienna Senior Living (TSX:SIA)
Sienna Senior Living (TSX:SIA) is a provider of senior housing and Long-Term Care (LTC) services here in Canada. The company owns and operates more than 80 residences across the country.
Sienna, much like other Canadian healthcare stocks, will be able to take advantage of an aging population. However, the company won’t be fueling growth via the sale of medication.
The demand for long term care services is on the rise, and there is a significant shortage of beds because of the drastic shift towards an older population. This bodes well for Sienna, if it can manage to keep up.
The company does have issues however, as most do. Because Sienna is so focused on long term care, its facilities are highly regulated by the Ministry of Health. Sienna has little control over changing government policy. And, as we’ve witnessed over numerous elections, health care is typically at the forefront of most campaigns.
However, I believe the pros outweigh the cons. Considering the backlog of Canadians looking to get into retirement homes, plus the aging population, it’s fairly safe to say that Sienna’s cash flows will be very reliable.
The stock also pays an excellent dividend in terms of yield at 4.76%.
Now, most investors will point to the company’s high payout ratio as a reason to avoid them. But, Sienna has paid consistent monthly dividends since 2010, and has raised its dividend three times over that time period.
The company is currently using its strong balance sheet to fuel expansion, and while analysts don’t predict much upside in this stock as of today, its dividend is worth the look alone.
Mkt Cap: $1.29 Billion
YTD Gains: 5%
Fwd P/E: 96.20
1Yr Price Target: $19.89
Savaria Inc (TSX:SIS) is yet another Canadian healthcare stock that is in a prime position to take advantage of an aging economy. Most investors view healthcare stocks as primarily drug manufacturers.
And while those stocks typically provide your best chance to hit a home-run in terms of returns, arming your portfolio with different industries of the healthcare sector can be extremely useful. Savaria provides just that.
The company develops, markets and manufacturers products for those who have mobility issues. This can be anything from elevators to stair lifts to adapting customers vehicles to become more mobility friendly. The company also develops therapeutic products for long-term care markets (see Sienna living above.) These can include beds, overlays and pillows.
Savaria has had a rough go as of late. Over the last year, the stock has traded relatively sideways. In fact, it’s actually down around 7%. So why has a company who has nearly tripled revenue and doubled earnings over the last four years not creating value for shareholders?
The primary issue would be share dilution, and another would be missed expectations. Savaria has a history of making share offerings to generate growth. When this happens, the market digests the new shares and as a result the share price drops.
So why do they keep offering shares? Well, the company currently pays a pretty healthy dividend. A Canadian Dividend Aristocrat and a monthly payer, Savaria yields around 3.23% at the time of writing. But, its payout ratio is high at 90%, and it is currently using around 120% of free cash flows to fund the dividend.
When a company is paying this much capital in the form of a dividend, there isn’t any left to fund growth. So, in order to drive that growth the company has had to issue shares.
Savaria is a small cap Canadian healthcare stock that has some very strong potential. The company just needs to get itself sorted right now, which I’m sure they will.
**Writer Daniel Kent is long SIS.TO**
Mkt Cap: $703.23 Million
YTD Gains: -2%
Fwd P/E: 22.82
1Yr Price Target: $16.25
WELL Health Technologies (TSXV:WELL)
We’re not ones to take extensive risk here at Stocktrades, and we often focus on small-cap stocks that trade on the TSX at minimum. Well Health Technologies (TSXV:WELL) , recently graduating from the TSX Venture to the TSX, has finally met this criteria, and offers a ton of potential growth for those looking to enter the healthcare sector.
So what does WELL do? The company owns the largest single chain network of care clinics in British Columbia. Along with that, they provide EMR (Emergency Medical Records) services to hundreds of medical clinics. This means thousands of doctors, nurses and healthcare workers benefit from WELL’s products but more importantly, over 15 million patients.
This makes WELL the third largest EMR provider in Canada. And considering healthcare in North-America will no doubt be a trillion dollar industry, there is a ton of room for growth. The company plans to continue it’s aggressiveness in terms of acquisitions to drive growth.
WELL has been, to put it lightly, astonishing in terms of returns over the last four years. In fact, those who bought in for $0.11 in April of 2016 are now up a whopping 1681%. The primary issue with investors now is did this stock become a too much, too soon situation. While analysts have tempered expectations, they still feel the stock has quite a bit of room to run with a 1 year price target of $2.28, which signals nearly 25% upside.
Mkt Cap: $218 Million
YTD Gains: 0%
Fwd P/E: N/A
1Yr Price Target: $2.28