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Top Stocks to Invest in America's Aging Workforce

Tirthankar Chakraborty

America’s baby boomers — those born between 1944 and 1964 — will turn older than the retirement age of 65 by 2030-end. Percentage of Americans aged 65 and above will climb to 21% by 2030 from 15% in 2018. In fact, the number of Americans aged above 60 has already tripled since 1950.

And what about the old-age dependency ratio? The metric is expected to drop to 2.5 working-age adults to one adult of retirement age by 2060 from 3.5 working-age adults to one adult of retirement age as of now. Needless to say, such a demographic change will continue.

So, how will investors make the most of America’s ageing population? The answer is as people get older, they require more medical care. Thus, an ageing population is a boon for healthcare stocks. What’s more, Americans have already spent $3.6 trillion on healthcare in 2018, and the number is projected to increase healthcare outlays annually 5.5% through 2027, per the Centers for Medicare and Medicaid Services (CMS).

Consistent spending should provide stable earnings to healthcare companies, eventually pushing shares of healthcare companies higher. Thus, investors should keep an eye on the world’s largest medical device company, Medtronic plc MDT. The company is known for making insulin pumps, surgical devices and pacemakers. And these products will remain in high demand for decades as long as America’s population ages.

Medtronic’s major business groups have registered commendable top-line growth and displayed the achievement of synergy targets in recent times. Shares of Medtronic have gained 36.3% over the past year, compared with the Medical - Products industry’s rise of 15.4%. To top it, the company’s expected earnings growth rate for the current quarter and year are an encouraging 7% and 7.3%, respectively.

 

Another traditional healthcare provider Cigna Corporation CI should gain from an aging population. Cigna’s revenues jumped a whopping 237% on a year-over-year basis during the third quarter of 2019. And it’s mostly because of a merger with pharma company Express Scripts. Given that an aging population leads to more use of pharmaceuticals, this merger is an indication that Cigna is certainly making its move to benefit from the expansion in aging population.

Per the U.S. Centers for Disease Control, those who are above 65 years of age had visited hospitals three times more than the general public last year. Such individuals will certainly need prescription and Cigna is well poised to deliver.

Needless to say, Cigna’s differentiated business portfolio, strong global supplemental business and organizational efficiency plans should drive long-term growth. Shares of Cigna have gained 24.5% over the past six-month period, more than the Insurance - Multi line industry’s rise of 2.3%. The company’s expected earnings growth rate of 19.1% for the current year is also higher than the broader industry’s projected increase of 10.4%.

 

Now, let us look at stocks that offer a less-traditional way to tap the ageing population. One such name is Apple Inc. AAPL. The iPhone maker’s wearables segment that includes products such as Apple Watch, Air Pods, and Beats earphones could open up opportunities in the healthcare space provided Apple incorporates new technologies into such devices.

Nowadays, the Apple Watch is being used as a heart-rate monitor by senior citizens. Apple describes the Apple Watch as the “first watch that really watches out for you.” Notably, EMarketer projects that almost 13.2% of seniors will wear the Apple Watch in 2019, and the number will grow in 2020 and beyond.

Apple, by the way, is benefitting from the momentum in its non-iPhone businesses, particularly Services and Wearables. In fiscal fourth quarter, revenues from the wearables segment jumped more than 50% on a year-over-year basis. And in the future, the company’s wearables segment could become its biggest growth driver.

Shares of the iPhone maker surged 86% to close at $293 a share last year, making it the best-performing stock listed on the Dow. So far this year, shares of the company are increasing on par with the Computer - Mini computers industry, at 8.5%. However, the company’s expected earnings growth rate for the current year is 10.7%, slightly higher than the industry’s estimated rise of 10%.

 

Next on the list is the provider of online advertising services, Alphabet Inc. GOOGL. One of Alphabet’s primary subsidiary, Calico, develops biotechnologies aimed at eradicating age-related diseases, including cancer. And with the parent company being financially sound, Calico will certainly come up with ground-breaking discoveries.

Alphabet’s revenues from “other bets” segment, which includes Calico, generated solid top-line results in recent times. In itself, Alphabet is doing pretty well. The company is not only a leader in search market but is also generating solid cash inflows from its mobile initiatives and acquisitions.

Shares of Alphabet have increased 33.7% over the past year, higher than the Internet - Services industry’s rise of 13.5%. The company’s expected earnings growth rate for the current year is 6.6%, compared with the broader industry’s projected rise of 2.7%.

 

Medtronic, Cigna, Apple and Alphabet possess a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Click to get this free report Alphabet Inc. (GOOGL) : Free Stock Analysis Report Apple Inc. (AAPL) : Free Stock Analysis Report Cigna Corporation (CI) : Free Stock Analysis Report Medtronic PLC (MDT) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research