US investors recognise 'value' in healthcare

Savvy investors are using the sell-off in value stocks to buy companies with strong long term growth potential.

Robert Siddles, manager of the US Smaller Companies fund, said although value investing has been out of vogue for the past six months, there were great opportunities, particularly in the healthcare sector.

"Radiation Therapy Services is a leading developer and operator of radiation therapy centres, providing some of the most advanced treatment for cancer patients. Although the company's second quarter results were disappointing, owing in part to the retirement of the company's CFO and secondly because the company's acquisition of several urology physician practices put pressure on margins, the long term growth potential for the business is finally being recognised. After markets closed on Friday the company announced it was going private in a leveraged buy out deal sponsored by private equity firm Vestar Capital at a premium to the share price of 51%. With 40% management ownership of Radiation Therapy Services, we believe that the LBO will go ahead. This is good news for us having held a 2% position in the stock.

"Elsewhere in the sector we like Community Health Systems, a rural hospital chain which is currently exceptionally cheap at 12 times 2008 earnings. We believe that the company's success rate to date in buying up not-for-profit hospitals and turning them into successful operations offering a wider range of treatment, should steadily attract patients back from large inner city hospitals. We have a very strong conviction in the company's growth potential, in a market where there are relatively few competitors, and have added to our position which remains one of the largest holdings in our portfolio," concluded Siddles.