According to the Administration on Aging (yes, there is such an institution and it can be found at aoa.gov), exiting 2009 (the latest year for which the data is available), persons 65 years or older numbered 39.6 million in 2009, roughly 13% of the U.S. population or one in every eight Americans. By 2030, the AOA estimates there will be about 72.1 million older persons, more than twice their number in 2000.
This aging of the population is not a new concept; when we trace back to 1900, we find the percentage of Americans 65+ has more than tripled (from 4.1% in 1900 to 12.9% in 2009). In looking at the data, it becomes clear that it’s not just more people that are 65+ but that population cohort itself is living longer. In 2008, the 65-74 age group (20.8 million) was 9.5 times larger than in 1900, while the 75-84 group (13.1 million) was 17 times larger and the 85+ group (5.6 million) was 46 times larger. What really put the data into perspective for me was the following: A child born in 2007 could expect to live 77.9 years, about 30 years longer than a child born in 1900.
As a result of increasing longevity and the decline in the number of babies being born each year, the domestic population is skewing older. As we head further into 2011, that pace is going to accelerate as the Baby Boomer generation (those born between January 1, 1946 and December 31, 1964) turns 65. Beginning January 1, 2011 every single day more than10,000 Baby Boomers will reach the age of 65. That is going to keep happening every single day for the next 19 years and will add roughly 70 million to the 65+ category.
As an investor, I am always on the lookout for opportunities characterized by an expanding addressable market. My aging of the population investing theme identifies and looks to invest in companies positioned to address the needs and demands of the expanding older population. As with a few of my investing themes, there are several facets that allow for both direct and indirect ways a candidate company may be fit in Aging of the Population. From healthcare and investing to beauty products and nutrition, to assisted living and other services, there are a number of traditional industry verticals that fit into Aging of the Population when viewed through the right lens.
With that in mind, here are some of the candidates that I am evaluating as part of my Aging of the Population theme. Evidence of several reports, as well as that of the anecdotal variety collected by anyone who does an informal family poll, shows that elderly people overall use disproportionally more health services than other age groups and that a minority account for a majority of healthcare expenditure.
With that in mind, one I am looking at is Henry Schein, Inc. (HSIC), one of the largest distributors of healthcare products and services primarily to office-based healthcare practitioners, a market it has targeted for more than 78 years. The company serves more than 700,000 customers worldwide, including dental practitioners and laboratories, physician practices and animal health clinics, as well as government and other institutions.
Henry Schein reports its business in two segments:
- Healthcare distribution: Dental, medical, animal health and international operating segments, which consist of consumable products, small equipment, laboratory products, large dental equipment, equipment repair services, branded and generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products and vitamins. Henry Schein derives more than 95% of its revenues from this segment and more than 85% of its operating income in 2010.
- Technology group provides software, technology and other value-added services to healthcare practitioners. As with healthcare distribution, the technology group targets dental and medical practitioners and animal health clinics. While a small part of the company’s overall revenue stream by comparison, the high margin nature of this business results in favorable incremental margins on the operating line.
One of the reasons I like HSIC is the near consistent earnings improvement year-over-year for the vast majority of the last decade and prospects for continued earnings improvement both this year and next. Current Street estimates call for Henry Schein to earn $3.97 in EPS in 2011 and $4.42 in 2012 compared to $3.58 in 2010 and $1.01 back in 2001. Insiders own 1.8 million shares or 2 percent of the outstanding share base, and while the company’s balance sheet is one characterized by roughly $300 million in net debt, its interest coverage is formidable.
According to an Employee Benefit Research Institute’s annual Retirement Confidence Survey, the percentage of workers who said they have less than $10,000 in savings grew to 43% in 2010, from 39% in 2009. It’s hardly a shock to learn that 24% of workers said they have postponed their planned retirement age in the past year, up from 14% in 2008 according to EBRI findings.
Add to that recent AARP findings that reveal 40 percent of Baby Boomers will work “until they drop” and that nearly half of them fear that their retirement will result in poverty, according to a study released by California-based investment advisers Financial Engines, and the need for financial planning and savings becomes apparent. While this affects those hitting the 65+ age cohort, the harsh reality is that planning and saving should begin at a far earlier age.
While there are a number of electronic brokerages, such as E Trade Financial Corp. (ETFC) and TD Ameritrade Holdings (AMTD), the reality is that as a person grows older the financial decisions become more complex, especially so depending on the size of his or her family, if there are medical issues, multiple properties and so on. As such, I find companies that offer wealth management and financial planning, not just brokerage services as better candidates. Prospects that meet that criteria include Ameriprise Financial (AMP) and The Charles Schwab Corp. (SCHW) as well as other financial services companies like Heartland Financial USA (HTLF), U.S. Bancorp (USB) and supplemental benefits company Humana Inc. (HUM).
While it’s a given fact that all people age, there are many that do whatever they can to fight the effects of aging. As certain people I know have said in jest, many are looking for the proverbial The Fountain of Youth. Some of the more popular anti-aging treatments include cosmetics and cosmetic surgery as well as nutritional supplements and other health and wellness products. Companies that address these needs include Revlon, Inc. (REV), Avon Products (AVP), The Estee Lauder Companies (EL), Nu Skin Enterprises (NUS), Herbalife Ltd. (HLF), and Palomar Medical Technologies (PMTI) among others. I would also include Ulta Salon, Cosmetics & Fragrance (ULTA), a beauty retailer that provides one-stop shopping for prestige, mass and salon products.
As I mentioned above, there are more than a few facets to investing using my Aging of the Population theme and the above represent several possibilities. In the coming weeks and months, I’ll be digging deeper into these and other candidates to capture the cream of the crop.