3 Best Stocks for Tapping the Power of the Baby Boomers

The best stocks to own to play the aging Baby Boomer generation

If you want to invest in huge trends, don’t overlook the baby boomers.

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Source: ©iStock.com/Ridofranz

As people live longer, largely in part to better overall healthcare, more and more healthcare is required to keep them living. Therefore, demand for healthcare will continue to increase as the average age increases, making properly positioned healthcare business’s goldmines.

And the numbers support that thesis. According to the U.S. Census Bureau, at the end of 2014 the baby boomer generation accounted for 26% of the U.S. population. It is also estimated that each day, 10,000 baby boomers turn age 65 — and that figure is expected to grow each year for the next decade.

Meanwhile, more than 50 million Americans are enrolled in Medicare, and economist predict that within 15 years more than 80 million Americans will be on Medicare.

So what are some of best stocks to buy to benefit from the aging baby boomer generation? Let’s look at a drug manufacture, a pharmacy and a real-estate company that focuses on healthcare facilities.

Best Stocks to Buy: Mylan N.V. (MYL)

mylan myl abbott labs abtThe average 70-year-old takes three times more prescription drugs than your average 40-year-old, according to U.S. News & World Reports. Personally, I believe that stat is enough to convince investors that drug manufacturers are some of the best stocks to buy today.

But there are a few reasons why I believe Mylan (MYL) should be the drug manufacturer that is at the top of your list of the best stocks to buy. First, Mylan is the world’s second-largest generic drug manufacture. So the international exposure gives investors the opportunity to profit from both the U.S. Baby Boomer trend and aging globally.

Still need more to persuade you that Mylan is one of the best stocks to buy? Mylan reported revenue of more than $9.7 billion for 2015, up 25% from $7.7 billion in 2014. Full-year earnings per share are also estimated to increase by nearly 18% from $3.56 in 2014 to $4.21 in 2015.

Usually that sort of growth doesn’t come cheap. Shares of MYL are currently trading at 26 times trailing-12-months earnings, but only 11 times estimated 2016 earnings. And despite MYL shares falling more than 24% over the past month, as a possible acquisition seems to have fallen through, the stock is still beating the S&P 500 by 10 percentage points over the past 12 months.

Investors should take the recent share price decline as a great opportunity to buy MYL stock before the market gets wise again.

Best Stocks to Buy: CVS Health Corporation (CVS)

cvsA year ago, when CVS Health Corporation (CVS) announced that it would no longer sell tobacco products, some investors thought the move would be terrible for the stock.

How wrong those critics were.

Over the past 12 months, shares of CVS are up more than 36% compared to the S&P 500’s 6.5% increase. While the removal of tobacco products has hurt CVS’s revenue and store traffic, management’s decision to evolve as a more self-conscious healthcare service provider looks to be a smart move, making CVS one of the best stocks to buy today.

In its most recent quarterly earnings report, CVS reported sales rose 7.4% and earnings increased by 2.1%. To combat the lower front-end sales and estimated $2 billion just from tobacco, management is attempting to add more ‘healthy’ snack options, a move that also plays on the health revolution trend occurring throughout the U.S.

But while the front end of CVS’s business is being revamped, the real growth is coming from its pharmacy. With recent acquisitions of Omnicare, a service that fulfills prescriptions to nursing homes, and the purchase of Target Corporation’s (TGT) pharmacy business, CVS is becoming more and more a true pharmacy play.

What makes CVS one of the best stocks to buy is its growing exposure to prescription drug usage by baby boomers and the fact that its valuation at 18 times forward earnings or 26 times past earnings, isn’t ridiculously high.

Best Stocks to Buy: HCP (HCP)

hcp-stock-dividend-stocksThe last of my three best stocks to buy to profit on the baby boomers trend is HCP (HCP). HCP is a real-estate investment trust which focuses on properties serving the healthcare industry.

HCP owns buildings used for hospitals, senior living, medical offices, and skilled nursing to name a few. As the U.S. population continues to age, these facilities will see an increase in demand, especially the skilled nursing and senior living locations, putting HCP and its shareholders in a wonderful position.

While some investors may not feel comfortable with the REIT structure and investing in real-estate after the most recent financial crisis, HCP is not just a run-of-the-mill REIT.

While the company does pay the bulk of its earnings out in the form of a dividend (currently yielding nearly 6%), HCP is the only REIT to be part of the distinguished S&P 500 dividend aristocrat group. The requirements to be a dividend aristocrat is the company must have consecutively increased its annual dividend payment for 25 years or more; HCP has been doing so since 1986.

Although HCP’s recent stock performance has been unimpressive — down 5% over the past 12 months —  HCP is well positioned to benefit from higher demand for senior citizen healthcare facilities. Additionally, the stock’s very reliable and rather large dividend payment makes HCP one of the best stocks to buy for investors looking to tap into the power of Baby Boomers.

As of this writing, Matt Thalman was long Mylan. Follow him on Twitter at @mthalman5513.

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