Cochlear Ltd (ASX: COH) has seen its share price take a hit, dropping 54.2% since the start of 2025. This prompts the question: Is now the time to add COH shares to your watchlist? This article delves into the reasons why investors might be drawn to healthcare stocks, with a focus on Cochlear's unique position in the market.
The Healthcare Sector's Appeal
Healthcare spending is a cornerstone of any economy, and it's one of the last areas people cut back on during economic downturns. This 'sticky' revenue stream is a key advantage of healthcare companies, as they are less susceptible to the vagaries of commodity prices and seasonal demand. This was evident during the Global Financial Crisis (GFC), where healthcare emerged as the best-performing sector.
Global Healthcare Spending Growth
The global healthcare sector is set to experience significant growth, particularly in the US, which accounts for over 40% of the global total. Projections indicate that US healthcare spending will grow at a rate of 7% per year from 2022 to 2027, reaching a staggering US$819 billion. Within this broad sector, sub-sectors like healthcare IT, data solutions, and 'software-as-a-service' (SaaS) companies are forecast to grow their revenue at an impressive rate of over 15% per year from 2024 to 2030, making them attractive prospects for investors.
Ethical Investing and Healthcare
The rise of ethical and sustainable investing is another factor boosting the healthcare sector. A Morgan Stanley survey revealed that over half of investors plan to increase their allocation to sustainable investments in 2024. With a growing emphasis on 'ethical' and 'sustainable' investing, healthcare companies, which provide essential public services, are well-positioned to attract new capital and investors.
Cochlear's Position and Valuation
Cochlear, as a global leader in hearing technology, has a strong track record of delivering over 750,000 implantable devices and employing over 5,000 people across 50+ countries. Its mission to enhance the quality of life for individuals with hearing-related conditions is a powerful draw. However, the current price-sales ratio of 3.50x for Cochlear's shares is below its 5-year average of 9.18x, suggesting that the share price may have fallen, or sales have increased. In Cochlear's case, revenue has indeed been growing over the last three years.
Conclusion
While the recent decline in Cochlear's share price may be concerning, it presents an opportunity for investors to consider adding healthcare stocks to their watchlist. The healthcare sector's essential nature, global growth potential, and alignment with ethical investing trends make it an attractive investment opportunity. Cochlear's strong position in the market and its commitment to improving lives through hearing technology further solidify its appeal. However, investors should conduct thorough research and consider multiple valuation techniques before making any investment decisions.
