The long-term outlook for the healthcare sector continues to be promising. Population growth and increased life expectancies are forecast to result in the number of people aged 65 years and older doubling from 703 million in 2019 to 1.5 billion by 2050. This means that as the years progress, many more people will require healthcare, including medicines and insurance.
Here are two healthcare stocks that are poised to benefit from such trends.
Image source: Getty Images.
1. GSK: An established player with continued growth potential
Tracing its beginnings back more than 300 years to Plough Court Pharmacy in London, GSK (GSK 0.49%) is one of the oldest pharmaceutical companies on the planet. The company's existing portfolio consists of dozens of products. This includes 10 vaccines/medicines that are on pace to surpass $1 billion in sales in 2023, such as the shingles vaccine Shingrix, HIV treatment Dovato, and COPD/asthma inhaler Trelegy Ellipta.
But don't let GSK's age and success to date trick you into thinking that the company's prospects are dull. For one, its respiratory syncytial virus vaccine Arexvy was the first to receive approval from the U.S. Food and Drug Administration last month. Analysts expect up to $2.5 billion in annual peak sales from the vaccine, which would be a major boost to the $36.2 billion in revenue that is projected from the British drugmaker in 2023.
Coupled with the strength of its respiratory and HIV medicine franchises, this is largely why analysts expect GSK's earnings to grow by 5% annually over the next five years. Beyond the medium term, the company has dozens of projects in its pipeline that could also drive growth for it.
As investors wait for GSK to deliver moderate growth, they can collect a sizable 4% dividend yield. This is generous compared to the S&P 500 index's 1.6% yield. Better yet, GSK's dividend payout ratio is expected to clock in at just above 35% over the next 12 months.
Topping it all off, the drugmaker's forward price-to-earnings (P/E) ratio of 8.6 is well below the drug manufacturers' industry average of 13.2. Even considering that GSK's annual earnings growth potential is moderately less than the industry average of 6.6%, the former is a better value for its growth profile than its peers as a whole.
2. Molina Healthcare: A leader in government-sponsored health plans
With around 5.3 million members in its government-sponsored Medicaid, Medicare, and Marketplace health insurance plans, Molina Healthcare (MOH -2.86%) is among the biggest health insurers in the world. This is what supports the company's $17 billion market capitalization.
Looking toward the future, Molina Healthcare could continue to do well for shareholders for two reasons. First, demographic trends should support a growing demand for health insurance. That is why Vantage Market Research believes that the global health insurance industry will grow from $2.6 trillion in 2021 to $3.3 trillion by 2028. Premium rate hikes, organic member growth, and bolt-on acquisitions should prove to be a trifecta of growth for Molina Healthcare.
Analysts anticipate that Molina will achieve 15.3% annual non-GAAP (adjusted) diluted earnings per share (EPS) growth over the next five years. That's far superior to the healthcare plans industry average annual earnings growth outlook of 11.9%. What's more, the shares trade at a reasonable valuation. Molina Healthcare's forward P/E ratio of 12.5 is less than the healthcare plans industry average of 13.5.
It isn't often that a company offering above-average growth prospects is priced at a below-average valuation, which is precisely what makes Molina Healthcare stock a buy for growth investors.
