Smashed, shunned… but this fundie is buying CSL and 2 more healthcare plays

The ASX healthcare sector has endured a difficult 12 months. With the S&P/ASX 200 Healthcare Index (ASX: XHJ) down around 31% at the time of writing, it has become one of the market’s weakest-performing sectors.

While it may be tempting to blame index heavyweight CSL (ASX: CSL), whose share price has fallen sharply over the same period (-43.82%), AllianceBernstein Portfolio Manager Anja Samardzic says the pain has been widely shared across the sector. 

According to Samardzic, the sell-off cannot be explained by one company or one issue alone.

“While CSL’s large index weight has contributed significantly to the sector’s decline, the underperformance has been broad-based. Only five of the 24 healthcare stocks in the ASX 300 outperformed in 2025.”

Instead, a combination of regulatory risks, funding pressures and currency headwinds has weighed heavily on sentiment. Yet despite the sector’s recent struggles, Samardzic believes the sell-off may now be creating selective opportunities for investors willing to look beyond the headline weakness.

Defensive medical devices still stand out

Within healthcare, Samardzic believes the most attractive opportunities currently lie in defensive medical devices, healthcare services and beaten-up pharmaceutical names.

Medical devices are particularly appealing because many companies in this segment remain relatively insulated from policy risk and funding pressures. For Samardzic, ResMed (ASX: RMD) is the clearest example.

“ResMed fits clearly into that category. It operates in an underpenetrated market with strong demand drivers, which makes its earnings outlook relatively defensive compared with many other parts of healthcare.”

The sleep apnoea market continues to expand globally, and structural drivers such as increased diagnosis rates and broader treatment adoption are supporting long-term demand.

Importantly, Samardzic believes the competitive position of the business remains strong despite market concerns. “We also think concerns around competitive threats to ResMed are somewhat overstated.”

Even as scrutiny around competition has increased in the United States, the company continues to deliver solid growth internationally, reinforcing confidence in its brand strength and market position.

Healthcare services may finally be turning

Healthcare services companies have endured a difficult few years, but Samardzic believes the environment is beginning to improve.

Businesses such as Sonic Healthcare (ASX: SHL) have faced intense margin pressure as labour costs surged while revenue growth remained relatively stable. However, the balance between those forces is now shifting.

“Companies such as Sonic Healthcare have seen cost inflation run ahead of revenue growth, compressing margins. That dynamic is now beginning to reverse.”

Revenue growth across many services businesses continues to track roughly GDP-plus, while cost pressures have started to moderate. That combination creates the potential for a meaningful margin recovery.

Sonic also benefits from additional internal levers to drive earnings growth.

“Sonic also has additional upside through cost synergies from acquisitions which have strengthened its position in key markets.”

Those efficiencies could support profitability even if external conditions remain challenging.

CSL and the opportunity in beaten-up pharma

Among the large-cap pharmaceutical names, Samardzic highlights CSL as an increasingly interesting opportunity after its extended share price weakness.

Despite operating in a structurally attractive industry, the company is currently trading below the valuation multiples of many traditional pharmaceutical peers.

“Despite operating in the attractive plasma industry, which has high barriers to entry, no patent-cliff risk and strong structural growth drivers, the stock is currently trading below the multiples of more vulnerable traditional pharmaceutical peers.”

The plasma therapeutics market has historically been resilient thanks to complex supply chains and strong demand growth. Samardzic believes those characteristics make CSL’s current valuation particularly compelling.

The macro pressures facing healthcare

The healthcare sector’s recent struggles are not purely company-specific. Instead, several macro forces have combined to weigh on sentiment.

Regulatory uncertainty has been one of the most significant factors. In the United States, policymakers are increasingly scrutinising healthcare pricing and spending.

“Globally, healthcare has been somewhat out of favour as regulatory risks in the United States have increased.”

Proposals such as “most favoured nation” drug pricing, which would tie US drug prices to the lowest prices paid in other developed markets, alongside tariff concerns, have created uncertainty for companies that rely heavily on US markets.

Government funding pressures have also affected the sector, particularly healthcare service providers.

“Healthcare services businesses have also faced funding pressure as governments globally look for savings in tighter fiscal environments.”

At the same time, currency movements have compounded the challenge for Australian investors. “Currency has been another headwind. A stronger Australian dollar has reduced the value of offshore earnings for many ASX-listed healthcare companies.”

Given that many Australian healthcare companies generate a significant portion of their revenue overseas, exchange rate movements can have a meaningful impact on reported earnings.

Where valuations look attractive and where risks remain

Despite the sector’s difficult year, Samardzic believes the sell-off has created attractive entry points in several areas. ResMed is one of the most compelling examples.

“The stock is currently trading at roughly a 20% discount to its long-term average P/E multiple, despite maintaining a double-digit earnings growth outlook.”

Strong free cash flow generation and a long track record of earnings growth reinforce the investment case. “Over the past 16 years, ResMed has grown EBITDA at an average rate of around 14% per annum.”

While some investors worry about the potential impact of GLP-1 weight-loss drugs on the sleep apnoea market, Samardzic believes those concerns may be overstated.

“Real-world clinical data on weight loss outcomes suggest any reduction in market size is likely to be limited to the low single digits.”

However, not all parts of the healthcare sector look equally appealing. Some areas still face significant structural pressures.

Ramsay Health Care (ASX: RHC), for example, appears relatively fully valued given ongoing wage pressure, funding risks in international markets and uncertainty around digital transformation spending.

Meanwhile, Australian pathology providers such as Healius (ASX: HLS) and Australian Clinical Labs (ASX: ACL) continue to face margin pressure from rising labour costs and domestic funding cuts.

For investors willing to look past the recent volatility, Samardzic believes the sector’s sell-off may be creating the kind of opportunities that rarely appear in healthcare. With valuations compressed and structural demand drivers intact, several high-quality names now offer a far more compelling entry point than they have in years.

For investors willing to look past the recent volatility, Samardzic believes the sector’s sell-off may be creating the kind of opportunities that rarely appear in healthcare. With valuations compressed and structural demand drivers intact, several high-quality names now offer a far more compelling entry point than they have in years. Learn more at AB Managed Volatility Equities Fund - MVE Class - Active ETF | AB.