The Forever Investment Series Vol. 2 — Aging Populations Present a Recession-Proof Trend

Jul 29, 2021 EducationalInvesting Strategies

We’re getting older.

I don’t mean that in the obvious sense that time continues its inexorable march forward.

Or in the sense that we discover new pains in joints we didn’t know we had.

I mean that, as a whole, we’re getting older.

Human populations are aging.

In major developed nations, the population of people 65 years old or more is growing at a fast pace.

In China, there are more than 166.5 million people 65 or older. In India, there are 84.9 million people in this demographic. The United States (52.7 million) and Japan (35.5 million) round out the top four countries with the largest number of citizens over 65.

But it’s not just the leading economies that are witnessing this trend.

According to the United Nations, in 2050, 16% of the global population will be 65 years old or more, up from 9.3% in 2020. In absolute numbers, that’s a more than 100% increase, from 727 million to 1.5 billion.

This swell of older humans creates another important trend.

Even when the markets teeter and fall, you can protect your money by investing in the universal trend of aging populations and the various products and services that cater to life extension. Let’s look at a few ideas.

The “Why” Is the Easy Part

Through improvements in nutrition, education, and health care, the chances of making it to age 65 and beyond are rising all over the world.

Take Sweden, for example.

In the 1890s, the probability that the average Swede would make it to 65 was less than 50%.

Today, the odds are higher than 90%, in both Sweden and most Western, high life-expectancy countries.

This transition is happening all over the world, though at different speeds. Today, 25% of the average person’s life is spent over the age of 65.

In the U.S., the number of people 65 years or older is set to almost double from 46 million to 90 million by 2050. By 2030, 1 in 5 Americans will be 65 or over.

This is going to change the workforce and economy in dramatic ways.

In Massachusetts, for example, the number of home health aides (that is, people who help the elderly to live in their own homes by assisting with medical and living needs) is set to be the fastest-growing job between now and 2024. The number of home health aides there could soar by 37%, according to state projections.

And Massachusetts isn’t even a particularly elderly state, relatively speaking. With 16.5% of its population at or above 65 years, Massachusetts ranks No. 24 in the nation.

That’s because, as researchers of aging sometimes say, “lifespan isn’t healthspan.”

What that means is that just because medicine has allowed us to extend the number of years we live, it hasn’t always been as good at extending the number of years we live healthily.

After all, we may live longer than our parents or grandparents, but many of those years are spent battling frailty and chronic diseases.

That’s why the biggest changes from our aging population will come in health care.

As the population ages, the cost of combating the diseases of aging will continue to rise. The federal Department of Health and Human Services, which oversees Medicare, estimates that in 2026, U.S. spending on health will make up 19.7% of the economy, up from 17.9% in 2016.

Consider that by 2030 more than 60% of baby boomers will be managing two or more chronic conditions, according to the Office of Disease Prevention and Health Promotion. That means taking medicines and seeing doctors for at least two conditions for the rest of their lives – lives that promise to be much longer than their parents’.

Not to mention the need for more elder care facilities.

Real Estate Boom in Medicine

As recently as 2017, 1.2 million Americans needed nursing home care, according to the Family Caregiver Alliance. In 2030, that number will be 1.9 million. Meanwhile, the number of people in need of assisted living facilities will almost double to approach 2 million, according to the same source.

And remember: 2030 is just a snapshot, not an end point. The millennial generation is larger than even the boomer generation, and will live even longer. Their needs for more health care will be even greater.

One company I’m watching is Welltower (WELL). Its stock moved into the Green Zone back in March and remains in a solid upward momentum trend, according to TradeSmith Finance.

Welltower is a public real estate investment trust (REIT) that invests in health care infrastructure across the United States. Its primary focus is on senior housing and facilities to treat the aging population.

According to a company presentation, its average tenant is 75 years old. During the pandemic, its balance sheet got much stronger from seniors moving into the company’s real estate holdings as more people sought to downsize and cut costs. The company’s portfolio also consists of long-term post-acute care facilities, outpatient medical facilities, and general health management properties.

This is a very intriguing long-term play that I’ll discuss at greater length in the weeks ahead.

Prescription Drug Demand to Grow

The fastest-growing part of health care spending is actually prescription drugs. Because drugs for the complicated diseases of aging are so complex, they are also very expensive.

Just consider Aduhelm, the recently FDA-approved Alzheimer’s drug from Biogen Inc. (BIIB). Even if we set aside the controversy surrounding whether the drug even works (probably not), Aduhelm’s cost is a sign of things to come.

Biogen will charge patients $56,000 per year for the drug. Mind you, even the best-case scenario has Aduhelm only managing Alzheimer’s, not treating it. That means $56,000 a year for the rest of every Alzheimer’s patient’s life.

Now, the number of Americans suffering from Alzheimer’s is set to grow to 14 million by 2050, up from 5 million in 2013. If we assume every one of them is to receive Aduhelm, which isn’t even close to the most expensive drug for age-related conditions, that would mean $784 billion every year spent on just this one drug.

That’s not to mention the cost of drugs for diabetes, blood pressure, bone loss, and other chronic conditions.

So it’s no surprise that spending on prescription drugs is already rising by an average of 6.3% a year, according to the Center for Medicare and Medicaid Services. This rate will likely keep growing, which is good news for drug companies.

Biogen has my attention.

But I’m also very bullish on AbbVie (ABBV), a pharmaceutical stock that is in the Green Zone, has uptrend momentum, and offers a rock-solid dividend of 4.38%. AbbVie was established out of a 1993 spinoff from Abbott Laboratories (ABT). The company specializes in high-margin drugs and is developing a new pipeline of products to offset slowing sales of its signature Humira drug. In 2023, the company will lose its patent exclusivity on that drug.

With that said, the company is developing two relatively new drugs – named Skyrizi and Rinvoq – that have similar overlap to Humira, which is used as a treatment for arthritis and other autoimmune diseases. Sales of both drugs exploded during the first quarter of 2021. Skyrizi sales increased by 89% year-over-year, while Rinvoq saw gains well over 100%. As a result, it appears that concerns about the loss of Humira are overblown. Once the market realizes the upside of these replacement drugs in the pipeline, this stock could take off like a rocket.

Conclusion

Remember, even when the market is frothy, there are rock-solid trends that you can follow to generate income and upside from the underlying stock. Pharmaceutical drugs and an aging global population create a good framework for identifying investment opportunities.

I’ll be back tomorrow to talk about Amazon.

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