When all those Wall Street prognosticators came out with their annual market forecasts for the New Year last December, how many predicted a pandemic? Not one.
But it really isn’t their fault. No one could have seen this coming. Recent events underscore the inherent unpredictability of the market. At any time, some unforeseen event can swoop in and change everything. But this isn’t just any time. The current environment is far more uncertain and unpredictable than most.
Here’s something we know for sure. The population is getting older. About a third of the U.S. population is now over 50 years old. The fastest growing segment of the population is 65 and older as an average of 10,000 baby boomers are turning 65 every single day. The trend is even more pronounced in other parts of the world. The trend will continue regardless of the course of the virus or who’s President, or if the earth is hit by a meteor.
The world’s population is already older than ever before in history and is getting still older at warp speed. The demographic of the human race is changing before our eyes. And this will have a profound effect on things. Older people require more healthcare. That’s just how we’re built. The trend makes the healthcare industry, which is already one of the most noncyclical and defensive areas, a growth sector as well.
Relatively Safe Healthcare Stocks to Invest In
Here are two great, safe healthcare stocks with the aging population mega-trend at their backs, with a business that offers both defense and growth in an uncertain stock market and economy.
AbbVie (ABBV) is a cutting edge company specializing in small molecule drugs. It has grown into the eighth largest pharmaceutical company in the world, primarily on the strength of its blockbuster biologic auto immune drug Humira, which is the world’s number one drug by far with annual sales of about $19 billion.
Although ABBV has performed well of late, having recently run close to the 52-week high with a better than 10% year-to-date return, it’s still cheap. The stock remains more than 30% below the 2018 high and sells at less than 10 times forward earnings.
It’s cheap because the blockbuster Humira drug is facing increasing competition and the market has worried that the company won’t be able to replace the lost revenues. I believe fears are overblown and the market is starting to agree. The drug is only facing competition overseas and has patent protection in the U.S., which accounts for three quarters of revenues, until 2023.
More importantly, the company has one of the very best pipelines of new drugs in the industry, as well as hugely promising newly launched drugs. The company believes recently launched cancer drugs Imbruvica and Venclexta can generate $9 billion in annual sales by 2025.
In addition, AbbVie has two immunology drugs gaining approval this year that market research firm EvaluatePharma ranks as the number 2 and number 3 drugs in its analysis of top new drug launches. AbbVie thinks the two drugs could bring in $10 billion a year by 2025.
To further diversify away from dependence on Humira, AbbVie purchased Ireland-based Allergan (AGN) for $63 billion last year. The company is about half the size of AbbVie and features blockbuster facial treatment drug Botox. The acquisition will diversify the company away from Humira in the near term while the stellar pipeline gains traction.
There is still a chance to buy one of the very best companies in the industry after a rare stumble in the stock price. By the way, the stock also yields a stellar 5% while you wait for the price to go higher.
Eli Lilly (LLY) is a global pharmaceutical company with over $23 billion in annual revenues. The company focuses on developing drugs for unmet needs in neurology and oncology and also significant drugs for diabetes and immunology, as well as Cialis for erectile dysfunction.
I like this company for two primary reasons; it is very well run and has one of the best drug pipelines and newly launched drugs in the industry. It’s financially sound with low debt levels and high profitability margins. Lilly also invests over 25% of sales into research and development. That’s significantly higher than any of its big pharma peers. And it shows.
The company estimates that newly launched drugs will account of 60% of sales by 2022. Recently, the stock shot up on very positive phase III (the step before FDA approval) results for cancer drug Retevmo. The drug already treats lung cancer but has also proven to significantly reduce the recurrence of breast cancer, too. That’s a huge development and the stock moved 15% higher on the day of the announcement. Lilly also has three Covid-19 drugs in the trial phase.
Analysts expect average earnings growth of over 13% per year for the next five years. But earnings may well be higher considering the new developments.
I personally purchased this stock back in 2012. Back then, it had a similar story to AbbVie today. It faced a huge patent cliff in 2014 and the market was skeptical that its stellar pipeline could overcome the revenue loss. It did and the stock is up over 400% since the purchase.
Of course, LLY isn’t as cheaply valued as ABBV and only yields 1.9% at the current price, but the future looks promising and the stock is a proven down market performer. In this tumultuous year where the S&P 500 is down over 5% since the start of the year, LLY is up over 20%. It was also one of the steadiest stocks out there during the March selloff.
This is a great company at the right place at the right time. It’s a solid stock to own through these uncertain times.