Longer But Less Healthy Lives Will Benefit This Trio
Reuben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Researchers from the University of Washington and the US Burden of Disease project reviewed health records from multiple countries to compare the health of citizens from nations around the world. One outcome from the work was the already well-known conclusion that the United States isn't as healthy as our spending patterns would suggest compared to other nations.
Another, more interesting, finding was a comparison of the prevalence of illnesses between 2000 and 2010 in the United States. Three companies that stand to benefit from increasing rates of key illnesses are:
According to MSNBC, the diagnosis of diabetes increased 58% between 2000 and 2010. Novo Nordisk is a giant in the insulin market, claiming to have around a 50% share of the world market based on volume. Although it sells products for other illnesses, it derives nearly 80% of its sales from its diabetes business.
The company estimates that there are over 370 million people with diabetes in the world, but believes that number will hit 550 million by 2030. Not surprisingly, The United States is one of the largest markets because of an aging and increasingly overweight population, factors that increase the incidence of type 2 diabetes.
The company's revenues have tripled over the past decade, going from 26 billion Danish kroner to 78 billion, with earnings more than doubling from 14 Danish kroner per share to 38. Although a price to earnings ratio of around 22.5 isn't cheap, it isn't out of line with competitors in the drug space. Growth investors should consider Novo as a way to benefit from increasing diabetes in the U.S. market and around the world.
Weight Loss and Diabetes Diets
Increased weight is one of the main ways that people wind up with diabetes. That's why the American Medical Association (AMA) recently voted to recognize obesity as a disease. That should allow patients to receive third party payments for weight loss treatment. NurtiSystem should benefit from that important industry shift.
NutriSystem designs and sells meal plans. Customers effectively give up their eating decisions and only eat what they are given. Having someone else cook all your meals is clearly expensive, which has led to sales falling each year since 2007 and the bottom-line falling into the red last year. With obesity being looked at as a disease, however, now could be a good time to buy the stock while it's down and out.
However, it's actually a double play on diabetes because NutriSystem also creates meal plans specifically for diabetics. If third-party payments are approved for obesity, the diabetic angle should be a big selling point for the company that helps differentiate it from competitors like Weight Watchers and Medifast.
The company is struggling now, but it has no long-term debt and, at the end of the first quarter, $35 million in cash. With diabetes and obesity rates heading higher, the company's food programs could see increasing demand. Turnaround investors should like this opportunity.
While diabetes and the related issue of obesity are pretty well known issues, less discussed is failing mental health. MSNBC reported that schizophrenia increased 29% between 2000 and 2010, alcohol abuse 26%, anxiety disorders 21%, drug abuse 85%, and major depressive disorder 43%. Clearly, the mental state of Americans isn't what it used to be.
Universal Health Services owns hospitals and psychiatric facilities. Revenues are split roughly equally between the two divisions, but psychiatric hospitals accounted for almost three quarters of earnings before interest, taxes, depreciation, and amortization.
The company expects stable pricing in the mental health division and increasing admissions, an outlook that the recent health study backs up. More interesting, the division has “minimal exposure to uncompensated care” so there are fewer write-offs. And mental health facilities are cheaper to build and run than full hospitals.
Although the top-line fell 5% last year, it's been heading generally higher over the past decade. Despite that drop, earnings improved from about $4 a share to around $4.50 year over year. The company is in a good position today and should see slow and steady organic growth. Acquisitions would be icing on the cake. Growth focused investors should find Universal of interest.
Benefit From Changing Healthcare Trends
Although the healthcare market is changing quickly, the long-term trends of Americans living longer and dealing with more chronic illnesses, physical and mental, isn't going to be changed by Obamacare any time soon. The three stocks above are all worth a look by investors seeking healthcare options.
Novo Nordisk sells a vital compound that diabetics can't live without. Struggling NutriSystem should benefit from obesity being turned into a disease and from its diabetic diet plans. Universal Health, meanwhile, has a unique niche in the mental health space that would be difficult for competitors to replicate.
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Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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!