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China Life Insurance positioned to gain from health care in emerging markets

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One of the best ways to profit from increasing health care needs in emerging markets is through the insurance sector, via firms like China Life Insurance Company ( LFC , quote ).

[caption align="alignright" caption="There's healthy profits in emerging market insurance companies"] Image courtesy Park1996: http://commons.wikimedia.org/wiki/User:Park1996 [/caption]

Based in Beijing, China Life Insurance sells defined health benefit plans, medical expense reimbursement plans, and disease-specific plans.

Legendary investor Warren Buffett favors insurance companies. This is because they make the most of the time value on money while optimizing the "playing of the float" for profits.

Health insurance companies collect premium income, invest it, and then pay out claims. They make more money from investments than premiums, and take their profits after the expenses and claims are paid. When Warren Buffett is investing, that profit can be huge.

The recent share price performance of LFC is certainly significant. Year to date, the company is up by 12.85%. It rose 10.96% in the last week alone. In recent action, China Life has performed much better than the main exchange traded fund for China, the iShares FTSE ( FXI , quote ).

The future is bullish for China Life in emerging markets. The company was recently upgraded by Zack's . Earnings-per-share growth for next year is projected to be 24.83%. Over the next five years, earnings-per-share growth is expected to be around 24%. Zack's cited China Life's "improving investment income, extensive domestic distribution channel, strong balance sheet, substantial cash flow and stable ratings" in its upgrade.

China Life is a dividend paying stock which adds to the total return. Its payout ratio is around 35%, which reflects good financial management. There is plenty of cash flow to increase the dividend income or buy back shares to reward shareholders.

The company appears to have put its former chairman's imprisonment for embezzling ¥200 million in company funds behind it.

As China grows, more people will purchase insurance . Beijing also plans to improve health care. Other emerging market countries will follow China's lead, and insurance companies like China Life are positioned to profit from that growth in health care spending.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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