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One of the investing principles from Benjamin Graham’s school of value commands to “Always Invest with a Margin of Safety”. An intelligent investor would the know value of buying a stock at a substantial discount to its intrinsic value, known as the margin of safety.
For example, if an investor buys stocks worth $1 for 50 cents, he is taking advantage of the margin of safety of 50 cents.
Benjamin Graham, the father of value investing, stressed over value investing through several principles and even practised them in his investment decisions. For a value investor, a practice of identifying stocks that are likely to have been traded for less than their intrinsic or book value and have the potential to make profits based on the lower productivity of the market.
Warren Buffett, a world-renowned business magnate and investor, emphasised over several points in his strategy for investment, including the strategy for being confident and trusting in long-term value investing, while investing in the business that an investor can understand.
For an investor, Warren Buffet emphasised on identifying companies with competitive advantages, while keeping cash on hand, purchasing a stock with a margin of safety and have the patience for receiving the returns.
As Benjamin Graham also quoted:
“In the short run, the market is a voting machine but in the long run, it is a weighing machine”
This means that market price gains in the short period of time represent short-term gains for the investors, which may even translate to losses depending upon the trends in the market, but in the long run, stocks have prospective to gain in value with the increase in return on capital, dividends paid by the Company, economic growth, and inflation, depicting a similar behaviour to a weighing machine.
The past week has been a frightening one for the investors across the globe, where investors lost huge money amidst the coronavirus worries. The increasing cases for coronavirus globally and Australia suffering its first death due to the disease, the investors across the globe are in a state of flux.
Investors were in a run to secure their earnings from further losses amidst heavy sell-off in the international markets. Huge money wiped off the markets within the past week and the market has not recovered from the shock in the present week’s trade of two days.
However, on 3 March 2020, the market index S&P/ASX 200 closed in green with a slight gain of 0.7%, and majority of the sectors settling with a gain during the day’s trade.
The S&P/ASX 200 Health Care (Sector) gained 2.44% during the day’s trade and was amongst the top gainers for the day. During the past week, several healthcare stocks have surged defying all the investor activities of sell-off amidst coronavirus worries.
Moreover, major healthcare companies reported increased sales amidst the coronavirus outbreak in China as well as internationally.
Let us look at some of the healthcare stocks and their performance in recent times.
Healthcare giant, CSL Limited (ASX:CSL) and Other healthcare stocks listed on ASX like, Cochlear Limited (ASX:COH), Sonic Healthcare Limited (ASX:SHL), CLINUVEL PHARMACEUTICALS LTD (ASX:CUV) and Ramsay Health Care Limited (ASX:RHC) all settled in the green zone during the day’s trade supporting the overall gains in the healthcare index.
The day’s performance of the stocks is given below:
By the end of the trading session, on 3 March 2020, CLINUVEL PHARMACEUTICALS LTD even made to the top five gainers of the day on ASX.
The dividend distribution trend of the above stocks shows growing income for the investors with significant growth in dividends each year till 2019.
The following chart gives a snapshot of the returns that these stocks have delivered to its shareholders during the last five years till 02 March 2020.
Source: ASX
All the stocks, except RHC, have delivered significant returns to its shareholders, wherein has proved to be the best long-term investment for the investors amongst these stocks with maximum returns to its shareholders.
Financial Output
In the past six months till 31 December 2020, the stocks have shown favourable results for its shareholders, including times of intensifying risks in the international market like the US-China trade war, the US-Iran tensions and the bushfires in Australia in December.
Moreover, for the six months ended 31 December 2019,
- CSL reported an increase of 8% in its net profit after tax that amounted to $1,248 million and earnings per share were up by 11% at constant currency basis;
- COH reported sales revenue up 9% to $777.6 million and reported net profit increased by 23% to $157.7 million;
- SHL recorded underlying EBITDA growth of 14% and revenue growth of 15% to $3.3 billion;
- RHC achieved a Core NPAT of $273.6 million up 3.4% on a like for like basis, and group revenue was up by 22.5% to $6.3 billion;
- CUV recorded a net profit of $1.059 million, eighth consecutive half-year profit, with revenue up by 11%.
The strong first-half performance for FY20 of the stocks reflects upon their successful attempt in focused execution of their strategies and robust demand for their differentiated products. Innovation, research and development are the cornerstones of a healthcare company’s strategy.
Looking at the gains during 3 March 2020, in the healthcare space in times of the amplifying repercussions due to coronavirus, the investors seem to reflect defensive characteristics and have shown faith in the healthcare stocks.
Guidance Update
The stocks have the following updates on their guidance front for their near-term financial performance:
- CSL expects growth of 10-13% in its FY20 net profit after tax over FY19 and achieving the same in the range of approximately $2,110 million to $2,170 million at CC basis;
- SHL is on track to achieve the full-year earnings guidance of 6-8% underlying EBITDA growth on constant currency basis, excluding the impact of AASB 16 Leases;
- RHC reaffirmed its FY20 Core EPS growth on a like-for-like basis of 2% to 4%, based on Core EBITDAR growth of 8% to 10%, which is unaffected by the new lease standard;
- COH looks forward to achieving FY20 net profit guidance of $270-290 million, a 2-9% increase on underlying net profit for FY19, with strong cochlear implant growth to be partly offset by the impact of the coronavirus on sales in Greater China.
