As the developed world (Japan, Europe and to a lesser extent, the U.S.) is getting older, and emerging markets getting both bigger and richer, the healthcare and wellness industry is set to expand. It's a pattern that is becoming common: developed economies dominate spending, while emerging ones dominate growth. In this sector, most of the growth will come from developing countries. As an example, double digit growth of over-the-counter (OTC) drug sales will be generated in emerging markets, almost half of that from the India and China alone.
On a demographic note, the global population over 60 is growing more than twice as fast as the total population. During the 1960s, the world median age was about 25 and according to the UN, by 2050, it will be close to 40. The biggest change is that advancements in science and technology allow the increased personalization of medical care. According to a recent McKinsey research report, consumers worldwide are also ever more open to a broader set of health and wellness solutions, including non-traditional treatments. Consumers also have access to more health information than ever; fully 96% (page 2) of American adults who use the Internet have used the Internet for health information. And they are not just looking. They are buying. For them, information collected at company/product websites is the most influential touch point over the purchase decision.
According to a research report by Euromonitor, 17% of consumers traded down in over-the-counter goods, picking the less expensive. Of these:
A) 93% opted for private label/store brands;
B) 75% report they no longer prefer the more expensive brand; and
C) 55% say the less expensive brand was better than expected.
As a result, the U.S. share of OTC private-label products has risen from 20% to 25% since 2007. At the same time though, a number of new and possibly disruptive players and formats are emerging. New players and partnerships are exploring platforms in consumer health and wellness; creating innovative solutions and expanding definition of this space. Private-equity and companies as diverse as Nestle (OTCPK:NSRGY), DuPont (DD), and Philips (PHG) are entering the sector. Nestle is investing in gastro-intestinal health; Philips in home healthcare solutions ; and DuPont, through its purchase of Solae, LLC and Danisco, in nutrition health ingredients.
One of the best-performing sectors in the healthcare and wellness industry, are real estate investment trusts (REITs) that focus on assisted-living facilities for senior citizens. The key feature of a REIT is that its corporate structure requires it to pay 90% of its income to its limited partners, or unit holders. According to a 2012 report from healthcare market research firm Kalorama Information, between 2006 and 2011, revenue from senior long-term care facilities increased 31% to $259 billion and is expected to increase to $353 billion by 2016; a growth projection of 37% in just three years. Not only are dividend yields of REITs projected to grow steadily in the next three years, but demand for assisted-living resources for an aging domestic population is also expected to surge. Investors can choose from a number of companies that showed strong performance.
One of these companies that puts emphasis on long-term healthcare facilities in the United States is Omega Healthcare (OHI). In 2012 its earnings per share were $1.12 and dividend yield was 6%. Share price increased by 34% in the last 12 months from $20.85 to around $28 currently. With a 2013 increase of earnings per share from $1.12 to $1.35, this healthcare REIT offers a compelling combination of growth, income and value.
Senior Housing Properties (SNH) is another healthcare REIT with an emphasis in U.S. senior housing properties. Since going public in early 2000, shares are up 194% to $25.3 (S&P is up 2% in the same time period), increasing from 21.68 for the last 12 months. Its normalized Funds from Operations (FFO) for 2012 were $295.9 million, or $1.75 per share. With a dividend yield of 6.1% (three times the benchmark 10-Year Treasury note), this healthcare REIT is another good option.
Companies in the healthcare and wellness industry also try to capitalize on new trends. Gabelli Healthcare & Wellness Rx fund (GRX) had the best total return performance of all - its fund was up 26.2% in 2012. For the last 12 months its share price increased from $7.95 to $9.43. Its Total Market Returns for the last 6 months is 19.10%. To this end the company is maintained as a capital appreciation fund first and keeps $0.10/share per quarter minimal dividend distribution. The fund concentrates on U.S. companies specialized on health and nutrition.
One of the innovators in the healthcare and wellness industry is a small micro cap stock - Capital Group Holdings Inc. (OTCPK:CGHC). It puts emphasis on the build-out and programming of its technology platform for the delivery of medical services to its subscribers. Capital Group Holdings operates two wholly owned subsidiaries: One Health Pass, Inc. and OneHealth Urgent Care Inc.
One Health Pass is bringing to market a suite of patient-centric telehealth services, where company contracts with physician networks to provide 24/7 telephone consultations to patients in need of medical advice. Its platform is developed as a central hub so members can access the company and third party medical services and products that can be managed from virtually anywhere with a phone, wireless networks and the internet. One Health Pass is currently researching additional strategic marketing agreements and acquisition candidates.
One Health Urgent Care, Inc., through its acquisition of Alliance Urgent Care is a growing urgent care organization in Arizona. Mind you it's a microcap stock that could go north or south on any given day, but it did increase revenue by 36% in the last quarter 2012 in comparison with Q4 2011, and should be one to keep an eye on during the next quarter.