America's population is getting older.
By the year 2030, the baby boomer cohort -- those born between 1944 and 1964 -- will all be older than the retirement age of 65. By the year 2034, it's projected that there will be more people 65 years of age and older than those under the age of 18. What's more, this shift in demographics is expected to continue well into the future.
In the year 2060, the ratio of retired adults to working-age adults -- the old-age dependency ratio -- is projected to decrease to 2.5 working-age adults to one adult of retirement age. That's a drop from the 3.5 working-age adults to every adult of retirement age today.
So how can investors use this information about America's aging population to their advantage?
One route could be through investing in the healthcare sector.
In 2018, Americans spent $3.6 trillion dollars on healthcare, representing a 4.4% year-over-year increase -- and increases in spending are projected to ramp up in the future as the population ages and needs increased care. In 2020-2027, healthcare expenditures are projected to grow at an average pace of 5.7%.
As a traditional healthcare provider, Cigna is clearly in a position to prosper. But Cigna in particular stands above its competitors (like its largest rival, UnitedHealth Group (UNH 1.50%)) as an excellent deal for investors today. Its business is coming off an excellent quarter, its stock is cheap on a valuation basis, and management is repurchasing many of the company's outstanding shares.
In the third quarter of 2019, Cigna reported revenue of $38.6 billion, representing a massive 237% increase year over year. This is mostly the result of a jump in pharmacy revenue related to a merger with pharmaceutical company Express Scripts. Considering that aging populations are key users of pharmaceuticals, this merger is an important indicator that Cigna is making moves to benefit older individuals. According to the U.S. Centers for Disease Control, those over the age of 65 are hospitalized three times more than the overall public. Moreover, those over the age of 75 experience four times as many hospital visits as the overall public. These individuals need prescriptions and Cigna is now well positioned to deliver.
America's aging population should help to bolster top- and bottom-line growth for Cigna in the future as the demand for healthcare providers increases among older adults.
Cigna trades at a forward price-to-earnings ratio of 10.9, well below the S&P 500's price-to-earnings valuation. In addition, the company's price-to-sales ratio is 0.59, which means investors are only paying 59 cents for $1 of sales.
What's more, Cigna's management is buying back stock -- and fewer shares outstanding is good news for investors. In the first three quarters of 2019, the company bought back over $1.4 billion worth of stock. That represents a large increase from the company's full-year cumulative buyback of $274 million in 2018.
Although Cigna is facing some policy uncertainty -- including proposed regulations and reforms -- as the U.S. inches closer to a presidential election, increased ambiguity surrounding the healthcare space may actually serve as a potential buying opportunity. Cigna's cheap valuation, profitable acquisitions, and reduced share count make it a stock worth considering.
Apple is a less traditional way to play America's aging population. After all, at its core, Apple is a technology company. But Apple may be able to leverage the healthcare aspect of its business to benefit aging adults and their caregivers. Sure, this growth avenue is still in its infancy, but it has the potential to become Apple's next big cash generator.
Apple's line of wearables -- specifically the Apple Watch, AirPods, and Beats earphones -- could pose as a unique opportunity in the healthcare space if Apple can continue to incorporate medical technology into its devices. Today, senior citizens are using the Apple Watch as a fall detector, a heart-rate monitor, and as a means to monitor their level of activity. Apple even describes the Apple Watch as "the first watch that really watches out for you" on its website.
Apple CEO Tim Cook said the "wearables business showed explosive growth" in the company's fiscal fourth-quarter earnings call. Additionally, Cook added that revenue from wearables grew at a year-over-year rate "well over 50%." Although Apple doesn't disclose revenue specifically for its wearables segment, analysts have estimated it to be about $20.8 billion. In the future, Apple's wearables business could become the company's biggest growth engine. In 2018, Emarketer estimated that 13.2% of seniors would wear an Apple Watch in 2019, and that this number would continue to grow.
Apple seems to be well aware of the demand for medical technology encompassed within its wearables. The company just announced three new studies with leading medical institutions, focusing on wearable tech products. These studies will focus on menstrual cycles, heart rates, and hearing.
In the future, I wouldn't be surprised if Apple incorporated a blood-pressure monitor into the Apple Watch, and hearing aid technology into Airpods. There are numerous possibilities just on the horizon for Apple in this field, and with massive resources at its disposal, it seems likely the company is chasing this potential.