Are There Investing Opportunities In The Healthcare Sector Now?

While the Straits Times Index  (SGX: ^STI) ended 2015 with losses, the Healthcare Sector was in the pink.

According to a recent report from exchange operator Singapore Exchange Limited (SGX: S68), the SGX All Healthcare Index, which comprises 29 healthcare companies listed in Singapore, was up by 5.7% on average from the start of 2015 to 29 December 2015.

Healthy stocks                      

As a whole, the components of the SGX All Healthcare Index were trading at an average price-to-earnings (PE) ratio of around 22, as of 29 December 2015 (subsequent valuation and return information is based on this date, unless otherwise stated).

This is higher than the PE ratio of 11.7 for the SPDR STI ETF (SGX: ES3), as of 31 December 2015; the exchange-traded fund (ETF) is a proxy for the Straits Times Index. This comparison could mean that healthcare stocks are generally pricey at the moment – but, let’s not jump to conclusions just yet.

The top performer in the SGX All Healthcare Index, Riverstone Holdings Limited (SGX: AP4), had enjoyed a 150% gain. The glove maker’s business performance in 2015 has been commendable as well. For the first nine months of the year, Riverstone Holdings recorded a 41.5% increase in revenue and an 83.9% spike in profit. The company’s shares were trading at a trailing PE of 24, which is on the higher end of their historical trading ranges.

There are stocks in the healthcare index which carry low valuations and First Real Estate Investment Trust (SGX: AW9U), which had a distribution yield of 7%, is one of them. The REIT’s trailing yield was one of the highest among the healthcare stocks. The hospital property owner, which is currently caught in an unclear situation where it could be delisted by its sponsor, was also trading at a reasonable price-to-book ratio of 1.2.

Foolish takeaway

High valuations may not always lead to poor investments, just as low valuations may not always signify a bargain. As a Foolish investor, we may want to consider why a stock is trading at higher or lower valuation levels and whether its long-term business prospects justifies those numbers.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.