More than 10,000 Americans reach the age of 65 every day and
move the demographic needle further to a change in spending
power, preferences and political clout. In five years, over 50%
of the U.S. population will be over the age of 50.
But you've already heard this story, right? The demographic
boom is just building up steam, and for years, investors have
been rushing to find every retirement housing and health care
stock under the sun.
Wall Street has been talking up the coming change for quite a
while, and the usual suspects all trade at pricey levels.
Senior Housing Properties (
trades at almost 34 times trailing earnings and has missed
earnings expectations in 11 of the past 12 quarters. The
SPDR S&P Pharmaceuticals Fund (
trades for an expensive 19 times trailing earnings, a premium of
almost 20% on the rest of the market despite uncertainty over the
Affordable Care Act (aka Obamacare) and future pricing power.
Meanwhile, the combined spending power of a group of 80
million people is growing every day. There is little doubt that
the aging demographic in the United States and across the
developed world will have huge consequences for companies that
can sell to the space.
Although the usual suspects of boomer-inspired stocks may
eventually pay out big time for people buying in at today's
prices, the real money is in stocks that have yet to be
discovered by the Street. Investors need to dig deeper into the
trends and lifestyle changes that will drive the stocks that
aren't yet on the market's radar.
To do this, you need to think outside the usual sectors of
senior housing and medical care -- the millions of people
approaching their retirement years, the activities they will pay
for, and the products they will buy.
Companionship, Leisure And Holistic Health
The need for social involvement and connection leads many to pet
ownership. Almost half (46%) of people over 65 have pets. If that
percentage holds, by 2030 more than 33 million seniors will be
caring for at least one pet. That translates to big potential for
PetMed Express (Nasdaq: PETS)
that offers prescription and over-the-counter medications over
the phone or online. As an added competitive advantage, PetMed
Express is also able to deliver on the group's limited mobility
and need for convenience through their home delivery service.
The American Pet Products Manufacturers' Association estimates
the dog and cat population at 165 million, with 62% of all
households having a pet. Spending on pets in the United States
reached $53 billion in 2012, a 6% increase from the prior year.
Spending on OTC medications showed even faster growth of 7.4%, to
The shares pay an attractive 4.2% dividend yield and sales
should get a boost in the near term from the reintroduction of
Novartis products. Sales have been under pressure over the past
year as competitors entered the space, but sales should rebound
as unprofitable firms without strong customer loyalty are driven
||Carnival Corp. operates in North America, Europe and
Asia, where demographic trends are favorable, and is the
dominant player with 45% of the global cruise market and
over 100 ships.
Anyone who's ever taken a cruise knows the opportunity the
aging demographic presents for the large carriers. Data from the
Florida-Caribbean Cruise Association shows an average cruise
passenger age of 50, well ahead of the median age of 35 for the
general population. More than a third (36%) of passengers are 60
years or older, compared with 16.2% in the general population.
Carnival Corp. (
operates in North America, Europe and Asia, where demographic
trends are favorable, and is the dominant player with 45% of the
global cruise market and over 100 ships.
The shares have been rangebound over the past three years,
largely a result of receiving 35% of sales from the stagnant
European market. The European Union is expected to show its first
positive GDP growth in six quarters in the current quarter and
should significantly support sales in the near term. The shares
pay a healthy 2.7% dividend yield and trade just above the book
value of assets.
Nature's Sunshine (Nasdaq: NATR)
is a $289 million natural health and wellness company engaged in
manufacturing and direct selling of nutritional and personal care
products. Traditional medical care is focused on reactive care,
treating health problems after they arrive. As baby boomers age,
they will increasingly look to supplements to prolong and improve
quality of life, meaning a boost to sales for companies like
Beyond the promise of higher long-term revenue from the aging
demographic, the company looks like a potential target to be
acquired or taken private. Director Mesdag Willem bought up an
additional $10.2 million over the last year and now owns more
than 15% of the company. Besides Willem, a large chunk of the
shares are owned by hedge fund and private equity players like
Prescott Capital Management and Red Mountain Capital
The shares trade cheaply at just 12.6 times trailing earnings
and a price-to-sales ratio of just 0.8, extremely cheap compared
with closest competitor
at 1.4 times sales. Nature's Sunshine pays a 2.2% dividend and
increased its income by 44% over the past fiscal year.
The best is yet to come
Investors willing to wait out any short-term volatility in these
three stocks should be rewarded over the long term as the
Street's view catches up to the promise of sales to the aging
demographic. Look to management discussion in the annual reports
of these companies to follow how they are positioning to profit
from the demographic.
And these companies aren't even the best of breed when it
comes to investing for the coming boom in the aging population.
In the next part of this series, I will tell you about two more
stocks that have an even greater potential. These two companies
not only have huge upside from the aging demographic but also
some serious catalysts in their current business model.
Risks to Consider:
Despite the fervor for senior housing and medical stocks, the
trend toward an older America is a long-term change. The stocks
above all have strong current fundamentals and growth but will
only gradually see their sales rise due to a larger elderly
population. Investors should be ready to be in it for the long
term and let stable and strengthening cash flows lead to higher
prices over time.
Action to Take -->
The graying of America is probably the strongest and most valid
trend facing the country. Investors looking for stocks with
secure, long-term tailwinds that haven't already been bid up
should look into the spending and lifestyle decisions of this
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