The novel coronavirus has put the spotlight on an aging population. Investors are focusing on the stocks to buy to benefit from Covid-19. While there is no doubt that the virus is taking the lives of seniors at an alarming rate here in America and elsewhere, the idea of benefiting from an aging demographic is not a new one.
In the past few years, plenty of InvestorPlace contributors have opined on the subject.
In May 2019, Josh Enomoto discussed assisted-living stocks as a hedge against the trade war between the U.S. and China. In January 2018, I discussed “10 Baby Boomer Stocks to Buy and Retire Wealthy.” Going back to 2012, Alyssa Oursler discussed seven long-term demographic trends investors should play to make money in the markets.
The No. 1 trend, according to Oursler, was old people. Some things never change. Today, most of the deaths from the coronavirus are happening in long-term care homes for the elderly.
While that doesn’t reflect well on the companies operating in this industry, in the long-term, better operators will figure out how to handle this type of situation for the next time it comes around.
- Teladoc Health (NYSE:TDOC)
- Biogen (NASDAQ:BIIB)
- Acadia Pharmaceuticals (NASDAQ:ACAD)
- Hillrom (NYSE:HRC)
- Ventas (NYSE:VTR)
- Amedisys (NASDAQ:AMED)
- UnitedHealth (NYSE:UNH)
- Boyd Gaming (NYSE:BYD)
- Thor Industries (NYSE:THO)
- Royal Caribbean (NYSE:RCL)
Good or bad, these 10 stocks to buy have a big part to play in an aging population.
Stocks to Buy: Teladoc (TDOC)
There aren’t many stocks that have performed better than Teladoc in 2020. Up 124% year to date through April 23, investors ought to consider this provider of telehealth services for the long haul.
That’s because Covid-19 has proven virtual health services take some of the strain off the healthcare system. In fact, Teladoc Chief Medical Officer Lewis Levy said the following on the matter:
“Virtual medical care keeps health care workers safe, especially since there are great shortages of personal protection equipment … You really have to triage patients in order to only send people who really need critical in-person care.”
What do you get when you take an aging population and mix in a global pandemic? A marketer’s dream remedy for accelerated growth.
“While many industry experts said consumer adoption was at a tipping point at the start of 2020, it is clear that Covid-19 put virtual care on a fast track for substantial growth,” Mdlive Chairman and Chief Executive Officer, Charles Jones said in a statement.
While Teladoc services all ages, I believe telemedicine can help seniors age better. Of all the stocks on this list, TDOC stock could be the biggest home run in the future.
During Covid-19, many of the drug companies we would normally hear about have been drowned out by news about Gilead Sciences (NASDAQ:GILD), Regeneron (NASDAQ:REGN) and other companies working on treatments, vaccines, etc.
However, when it comes to aging, few biotech companies are more important at the moment than Biogen, whose Alzheimer’s drug, aducanumab, is set to go before the Food and Drug Administration for approval in the third quarter.
Unfortunately, for long-time investors, the drug’s approval process continues to be delayed, pushing some analysts to adjust its go-to-market date to 2021 or even 2022. Ironically, Covid-19, which is partly responsible for the delay, is thought to have spread in the U.S. as a result of a Biogen conference in early March.
However, in the company’s Q1 2020 conference call, CEO Michel Vounatsos remained cautiously optimistic about its drug in development.
“We remain optimistic about the prospect of bringing aducanumab to market as the first therapy to reduce clinical decline in Alzheimer’s disease, and we continue to progress in our market preparation and launch readiness with an initial focus on the U.S.,” Vounatsos stated April 22.
“We hope that aducanumab marks the beginning of an era of new potential treatments for Alzheimer’s disease and we aim to build a broad franchise across multiple targets and modalities.”
In the first quarter, Biogen’s revenues increased by 1% to $3.5 billion, while its adjusted net earnings rose by 15% to $1.3 billion. Due to fewer shares outstanding, its earnings per share increased 31% year over year.
Up until aducanumab, Biogen was mostly known for its multiple sclerosis drugs. Approval of its Alzheimer’s drug would alter its growth profile tremendously.
Patient investors will be rewarded.
Acadia Pharmaceuticals (ACAD)
In April 2016, Acadia Pharmaceuticals’ drug Nuplazid, which is used to treat patients with Parkinson’s who are suffering from hallucinations and delusions, was approved for commercial use by the FDA.
At this stage of the game, it is the biotech company’s only product.
However, it is currently working on getting Nuplazid approved for the treatment of dementia-related psychosis. In December, Acadia reported positive results from its Stage III clinical trial that showed patients in the trial on Nuplazid were three times less likely to see a relapse in their psychosis than those on the placebo.
If approved by the FDA, it would become the first treatment for dementia-related psychosis. Given 30% of the eight million dementia patients in America suffer from some kind of psychosis, it would be a welcome addition for dementia patients across the country.
Acadia’s stock is up almost 15% year to date compared to a total return of -14% for the Morningstar U.S. Market Index. Investors who bought near its mid-March lows are doing even better, up 57% in a little over a month.
Currently trading at 21 times sales, considerably higher than its five-year average, I would try to pick up some stock in the low $40s at some point in the next two to three months. The downside of this play is that it could get accepted to go through the FDA approval process in the meantime, which would most certainly send its stock into the $50’s or beyond.
As a play on aging, however, it’s one of the better stocks to buy.
The Chicago-based maker of specialty beds and other products and services for use in hospitals and other healthcare facilities continues to focus on becoming more technologically innovative. As we struggle through Covid-19, the company’s products can be seen on the frontline in hospitals across the country.
Who hasn’t visited someone in the hospital and seen “Hillrom” at the end of the bed? It’s got a very strong brand in the healthcare industry.
In the company’s first-quarter presentation, Hillrom pointed out that the company expects to generate more than $550 million in 2020 from new products, up from $300 million just two years earlier. In 2019, new products accounted for 16% of its $2.9 billion in total revenue. Investors can expect that percentage to keep rising.
On April 23, Hillrom announced five new innovations to help caregivers fight Covid-19. Probably the biggest innovation involved the company’s MetaNeb System, which is used for respiratory care.
According to the company’s press release:
“Hillrom has received emergency use authorization from the FDA to adapt the company’s MetaNeb System to help COVID-19 patients … The MetaNeb System combines lung expansion, secretion clearance and aerosol delivery into a single integrated therapy session and can be used with any ventilator. Clinical studies show that oscillation and lung expansion therapy reduces time on the ventilator and reduces ICU length of stay.”
The company reported its first-quarter results in January. Highlights included a 6% increase in revenue, an 11% increase in its adjusted EPS, and a 160 basis point increase in its gross margin in the quarter. Hillrom reports its second-quarter results on May 1.
Long-term, you won’t go wrong with Hillrom. In the short-term, it’s an excellent defensive play in a very turbulent market.
Of all the stocks one might buy to benefit from the aging trend, Ventas has got to be one of the most disappointing. I have recommended the real estate investment trust, which owns more than 1,200 healthcare-related properties in the U.S., Canada and the U.K., on several occasions over the past three years with little to show for my confidence.
In May 2017, I included Ventas in a group of 10 S&P dividend stocks to buy. It’s down 58% in the three years since. I then recommended Ventas in July 2018 because I thought CEO Debra Cafaro did an excellent job running the company. Although it’s currently experiencing significant challenges in its senior housing portfolio, she’s widely respected in the industry. Finally, in October 2019, I recommended Ventas as one of 10 real estate stocks to buy to ride out the market volatility.
Live by the sword, die by the sword.
Ventas stock has a total return of 51% over the past three months, primarily because it generates 70% of its net operating income from seniors housing, and many of the operators of these facilities are looking for rent deferrals to cover the increased cost of taking care of patients.
Investors are worried that something’s got to give. And that something very well could be its quarterly dividend of 79 cents. The Motley Fool’s Reuben Gregg Brewer does a good job explaining why the dividend is likely to be cut.
My thesis for buying is simple: Ventas stock hasn’t traded this low since 2009. With a CEO as capable as Cafaro, I have confidence Ventas will make it through its latest challenge.
But if you’re looking to benefit from its 11.3% yield, you ought to look elsewhere. It’s anything but a lock.
If there is a company that ought to benefit from the aging population, Amedisys would have to be at the top of the list. That’s especially true because of Covid-19.
My mother lives in a nine-floor senior home. When she moved into the facility in 2014, it had one floor of long-term care. The rest were independent living apartments. Since then, the people who own the facility have turned two additional floors into assisted-living. I suspect before long, all of the floors will be dedicated to the sick and frail.
All across the U.S., people have been dying in long-term care facilities at an alarming rate. In Canada, nearly half the deaths from Covid-19 are linked to long-term care facilities.
In much the same way people view cruise lines as giant “petri dishes,” the same can be said about long-term care facilities.
Aging parents who once might have considered moving into a seniors facility as my mother did are likely going to have second thoughts about leaving the relative safety of their long-time homes.
That’s where Amedisys comes in.
As one of the leading providers of post-acute care, which includes home health, hospice and personal care, the company is ideally positioned to benefit from an uptick in in-home health services. And even if the trend toward staying in your home longer doesn’t accelerate, the aging population provides the company with a captive audience.
In the past five years, Amedisys has seen its revenues grow by 55% to $1.9 billion, while its net income grew from a $3 million loss in 2015 to a profit of $126.8 million in 2019. So, it’s not hard to understand why it’s got an annualized total return of 48.1% over the past five years.
Next to Teladoc, I think AMED stock could be the biggest no-brainer stock to buy on this list.
United Health (UNH)
Last October, Verizon (NYSE:VZ) and the Alabama Public Education Employees’ Health Insurance Plan (PEEHIP) announced that in 2020 they would no longer offer health benefits for its retirees through UnitedHealth.
In the case of PEEHIP, it moved those benefits to Humana (NYSE:HUM) while Verizon was shifting health benefits for its retirees in the western half of the country to CVS’ (NYSE:CVS) Aetna division. Verizon’s retirees in the eastern half of the U.S. would continue to receive health benefits from UnitedHealth Group.
While that was a blow to UnitedHealth’s group Medicare Advantage business, it still serviced more than 1.4 million retirees from 500 different companies. Senior benefits remain an important part of the company’s growth. If you include the purchase of Medicare Advantage coverage by individuals, UnitedHealth covered 5.3 million people as of the end of December.
In 2019, the company’s revenues increased 7.1% to $242.2 billion, due in large part to an increase in the number of people served by Medicare Advantage as well as several other reasons, including higher pricing trends.
In the first quarter ended March 31, UnitedHealth’s Medicare and Retirement segment grew revenues by 9.7% to $23.2 billion. That’s 45% of its total revenue in the quarter. Its Medicare Advantage business had a big quarter, growing the number of people it serves by 410,000 to 5.6 million. That’s almost 6% higher than three months earlier.
During this tragic time where the coronavirus continues to take its fair share of seniors, UnitedHealth continues to do its best to service this segment of the population. It’s hard to imagine the growth slowing any time soon.
Boyd Gaming (BYD)
I have never been a fan of casinos.
That said, I do know from my limited experience, that retirees like to frequent them to play slot machines and pass the time. While it’s hard to know how many casino customers will return once state economies reopen, I imagine Boyd Gaming will welcome them with open arms.
According to a recent study, the global casino market is expected to hit $525 billion by 2023. Another report suggests that 50% of U.S. casino gamblers are seniors. Further, 70% of seniors do some sort of gambling in a given year, making casinos a big beneficiary of an aging population.
Sadly, seniors have become a big target of the casinos, for very obvious financial reasons.
“The nation’s $40 billion a year gambling industry aggressively targets older customers, as they have accumulated wealth and are especially vulnerable, experts say, to wagering more than they can afford,” the January/February 2014 AARP bulletin stated.
The enticements range from free bus trips, meals and even discount prescription cards to “‘comped’ hotel accommodations — not to mention the private jets dispatched to pick up high-rollers.”
Considering 81% of those diagnosed with dementia are 75 or older, casinos walk a fine line between entertainment and seniors abuse.
Actions taken by the company to reduce cash outflows while its 29 gaming properties are closed include furloughing employees on an unpaid basis effective April 11, executive pay cuts, suspension of its dividend, suspension of all capital expenditures and postponing all non-essential spending.
Boyd Gaming believes it can make it through the coronavirus with enough liquidity to be able to reopen all of its properties. If so, you can be sure its customer base will return to the slot machines and gaming tables.
Thor Industries (THO)
As we make our way through the coronavirus, one of the things investment writers like myself are trying to figure out is what’s the world going to look like once we are able to go back to work and social distancing becomes a thing of the past.
In the near term, it’s likely that people wanting to get away from it all will choose to drive to their preferred destination rather than by plane or train. Further, not everyone is going to want to stay in a hotel, which makes a recreational vehicle an attractive alternative for people at or near retirement.
“RVs provide a wonderful opportunity for people to continue to enjoy vacations with their families, while still adhering to social distancing, which will likely stay in place in some form for the foreseeable future,” Craig Kirby, President of the Recreational Vehicle Industry Association (RVIA), recently stated.
As for those in retirement who are looking for a different lifestyle, according to the RVIA, as many as 200,000 people have made their permanent residence on wheels.
The biggest manufacturer of motorhomes and trailers in the U.S. is Thor Industries, which got its start in 1980 when Wade Thompson and Peter Orthwein acquired Airstream. Since then, it has made many acquisitions, becoming the No. 1 company in terms of the North American market share in both the towable and motorized segments of the RV industry.
In February 2019, Thor acquired Erwin Hymer Group, the largest RV company in Europe, for $1.76 billion in cash and 2.26 million shares of THO stock. The acquisition made it the world’s largest RV manufacturer.
Retirees have always been big on RVs. With millennials into buying campervans, a Hymer specialty, Thor Industries’ future looks very bright.
Royal Caribbean (RCL)
The average person who’s leery of being in crowded spaces isn’t likely to want to take a cruise anytime soon. I’m sure there are many seniors who feel this way. However, seniors continue to be a big demographic for the cruise industry.
In 2018, people over the age of 60 accounted for 33% of the passengers taking cruises, many of whom were from the U.S., which accounted for 13.1 million passengers, five times that of Mainland China, the next highest country for cruisers. Interestingly, the longer the cruise, the older the average age onboard the ship, which makes sense given retirees have more time to devote to lengthy trips.
Many of my InvestorPlace colleagues are skeptical about Royal Caribbean’s ability to survive the coronavirus.
“It’s worth noting that if you pick up a cruise stock now and it doesn’t go into bankruptcy, you’re looking at impressive returns over the next year as demand starts to pick up. However, there’s a good chance you are picking up a company that’s about to go under,” InvestorPlace’s Laura Hoy wrote on April 20. “For now, with uncertainty surrounding a potential second wave of coronavirus outbreaks, RCL stock is simply too risky — as are the rest of its peers. The only thing riskier than buying RCL stock right now would be going on an actual cruise.”
She’s not wrong to state going on a cruise right now would be an absolutely silly thing to do. Not even Royal Caribbean CEO Richard Fain thinks that’s a good idea. However, I don’t think it’s time to write off the cruise industry.
One way it has been able to save cash is by deferring debt payments on its German-made ships. According to Seatrade Cruise News, Hermes, Germany’s export credit agency, is providing 12-month deferments of debt payments for five ships. That’s on top of deferments for three ships announced previously. The eight ships will save it $450 million in cash.
In case you haven’t figured it out, there are a lot of people invested in the cruise industry, from shipbuilders to food and beverage suppliers to countries receiving docking fees for visiting cruise ships. The list goes on.
When it’s safe to go back, seniors will return in droves. If not, the world as we know it will be over. Then it won’t matter what you’ve invested in.
Aggressive investors would be wise to pick up RCL shares below $30. The last time an opportunity this good came around was during the Great Recession.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.