America is Aging and These Stocks Will Benefit Handsomely
Robert is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It’s plainly evident that the United States is an aging society. Baby Boomers are nearing retirement age in huge numbers. According to the Department of Health and Human Service’s Administration of Aging (AoA), the older population--persons 65 years or older--numbered 39.6 million in 2009 (the latest year for which data is available). They represented 12.9% of the U.S. population, about one in every eight Americans. By 2030, the AoA estimates there will be about 72.1 million older persons, more than twice their number in 2000. This type of growth might make you wonder, who's going to benefit? Here are a few stocks to answer just that question.
Device Makers Stand to Prosper
As the number of older persons continues its rise, the amount of health care needed to serve this population will rise accordingly. As a result, health care spending looks to go nowhere but up. How can investors get ahead of this trend? One stock to consider is Medtronic (NYSE: MDT). Medtronic manufactures and sells medical devices worldwide. Specifically, it provides cardiovascular products and products to treat heart conditions.
In February, Medtronic reported solid third-quarter results. The company’s revenue increased 4% on a constant currency basis. GAAP diluted earnings per share grew 10% versus the prior year, and the company generated $1.4 billion in free cash flow. These cash flows have resulted in big rewards for shareholders. In 2012 the company raised its dividend for the 35th consecutive year and the dividend has more than doubled over the last five years.
Baxter International (NYSE: BAX) is a $37 billion company that manufactures medical devices and other health products under two operating segments, BioScience and Medical Products. In late January Baxter announced fantastic results, reporting record sales, earnings, and cash flow for fiscal 2012. Net income rose from $3.88 in 2011 to $4.18 in 2012. At current prices, the stock trades for slightly more than 16 times 2012 earnings. Furthermore, the aging population in America means the company’s business prospects going forward are very solid. For 2013, Baxter expects earnings of $4.60 to $4.70 per diluted share, meaning the company trades at 14.5 times the midpoint of next year’s earnings range.
For a more speculative play, consider Boston Scientific (NYSE: BSX). Boston Scientific develops and manufactures medical devices, including stents, cardiovascular vessels, and implantable defibrillators and pacemakers. Boston Scientific is the smallest company of these three, with a market value of $10 billion. The company has reported losses over the trailing 12 month period, but that hasn’t stopped the stock from rallying, perhaps a result of optimism over the glut of health care spending likely to take place in the future. Shares of Boston Scientific have run up more than 25% since the start of 2013 and are sitting at its 52-week high.
The bottom line
Each of these companies offer medical devices and products that cater to the needs of America’s aging population. The demographics are extremely favorable for these companies, as the sheer number of older Americans is set to continue rising. According to the AoA, people age 65 and up represented 12.4% of the population in the year 2000 but are expected to grow to be 19% of the population by 2030.
Boston Scientific is a smaller company that might have more room to run, and as a result might be better-suited for speculative investors. Medtronic and Baxter are well-established large caps, each with market values in excess of $35 billion that have strong histories of earnings growth and rising dividend payouts to shareholders. No matter your investing preferences, each of these three stocks are sure to benefit from the aging American population and would be great candidates for further research.
Robert Ciura has no position in any stocks mentioned. The Motley Fool owns shares of Medtronic. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!