‘Simply too cheap’ ASX share that could plough ahead in a recession: expert

Happy healthcare workers in a labsHappy healthcare workers in a labs

With interest rates rising, many experts are urging investors to buy ASX shares that can maintain revenue through tough times.

One such sector is health, where the logic is that Australians will still need to treat their illnesses and injuries even if the economy is depressed.

Medical imaging provider Capitol Health Ltd (ASX: CAJ) is one company that’s seen its share price drop significantly, to the tune of 32% so far in 2022.

Quality business that’s too cheap

For Shaw and Partners portfolio manager James Gerrish, this dip has opened up a nice buying opportunity.

“We continue to like Capitol Health on valuation grounds,” he said in a Market Matters Q&A.

“We think it’s simply too cheap for the quality of their business.”

While it is not widely covered by fund managers, on CMC Markets, three of the four surveyed analysts rate Capitol Health shares as a buy.

Gerrish likes the revenue profile of the company, considering the economic downturn we’re heading into.

“It’s… important to note that in a recessionary environment, 80%+ of Capitol Health’s spending is Medicare based, providing downside protection alongside a balance sheet that has very minimal debt.”

The ASX share also pays out a decent income, currently handing out a 3.7% dividend yield.

Healthcare is the hot industry right now

Switzer Financial Group director Paul Rickard noted last week that the health sector was enjoying a nice comeback in July after plunging this year.

The S&P/ASX 200 Health Care (ASX: XHJ) index is indeed up a whopping 9% this month, after dropping 12 % from January to June.

Rickard attributed this to recent weakness in the dominant banking and mining sectors, as well as a weaker Australian dollar.

“Banks, there are question marks about whether high interest rates will really impact profits and bad debts in the long term,” he said on Switzer TV Investing.

“In the resources sector, people are still worried about commodity prices and the ‘R’ word — recession — and what that might do.”

Financial results season is another consideration, Rickard added.

“We’re coming into reporting season, and healthcare companies have traditionally done really well in reporting season.”

The post ‘Simply too cheap’ ASX share that could plough ahead in a recession: expert appeared first on The Motley Fool Australia.

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Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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