The 8.3% rise announced this week in the consumer price index for August from a year ago has markets struggling again. Investors are weighing the impact further rate hikes could have on the economy against the pressure it could put on the Fed to raise rates at a faster pace. That does not bode well for economic growth. What does all this mean for investors? Where can we invest our money in a more difficult economic climate?
Within values-based, recession-resistant plays, I love healthcare. It’s pretty simple. In times of economic uncertainty, what do we all need even if we don’t want to pay for it? Medical treatment.
Insurance never goes out of style
It may not be as exciting as zoom either oktabut everyone needs health insurance. United Health Group (UNH -0.36%) It has been one of the most reliable insurance companies in terms of expanding its business and profits on an annual basis. Total revenue increased 11.3% in 2021 alone. That’s an impressive figure for a company of its size. UnitedHealth Group is not far behind in translating that growth into significant shareholder value. Over the last four years, net earnings per diluted share have experienced consecutive double-digit growth rates.
The momentum doesn’t seem to be slowing down. Despite being an outright behemoth with nearly $300 billion in annual revenue (2021), UnitedHealth Group continues to produce solid earnings on a quarterly basis. In the second quarter, revenue was up 13% to $80.3 billion, operating profit was also up 19% year over year. During the first half of the year, premium income increased 14.5%, representing the core of the business with $128 billion during that period. And with the announcement of a 10-year partnership with Walmart, revenue is likely to keep growing. It seems UnitedHealth can’t be wrong, which is probably why analysts are projecting 14% annual earnings growth for the next five years.
A titan of the pharmacy
CVS Health Corp. (CVS -0.24%) is a diversified player in a large part of the health/insurance industries. A few years ago, we saw the pharmacy giant jump into insurance through its merger with Aetna. Now the company has been in the news most recently for its announced deal to buy Signify Health Inc (SGFY -0.10%) in an $8 billion deal.
This agreement with Signify would help CVS gain data tools that can be widely applied to the world of healthcare. Signify allocates data and technology to help physician groups, health systems, etc. that are based on home care, but you could easily see CVS using this to complement the other pieces of their primary care business as well, which already includes 1,100 walk-ins. -in clinics.
Take all of CVS’s assets together, and the company is becoming a giant in all things medical. Pharmacy and prescription drug coverage, health plans through Aetna, retail shopping for a large scale of products and medical needs all rolled into one, CVS is a one stop shop.
The criticism of CVS is a combination of losing momentum on COVID testing/vaccines, along with the planned closure of 900 stores. Overall, I think focused expansion within primary care offers a business that is much more attractive. Also, the increasing use of online ordering means that it may not take as many stores to run the business.
Primary care and pharmaceuticals are things consumers need regardless of economic circumstances, and I like stocks as a long-term investment. Top-line annual revenue continues to grow, with second-quarter revenue up 11% year-over-year to $80.6 billion, while some of its key initiatives revolving around patient care saw progress. MinuteClinic, the company’s retail clinical services arm, reported a 20% increase in scheduling during the second quarter, and since its launch earlier this year, six million people have signed up for CVS’s health dashboard.
Solid artists with success stories.
As long as we exist, healthcare is an industry that will simply never go out of style. Even if inflation drives up costs, many consumers still need prescriptions to survive. As a society, we will always need medical attention: accidents happen and illnesses happen. It’s just a part of life, which makes companies like CVS and UnitedHealth Group a part of life, too.
Both stocks have delivered price gains of more than 20% over the past 12 months as investors have begun shifting their portfolios toward safer value plays versus some of the riskier high-growth tech investments they have dominated. markets over the last half decade. . Given their proven track records, with very few apparent tailwinds, I believe both companies can continue to demonstrate strong earnings growth for years to come and offer protection against the impact a potential downturn could have on other industries in 2023 and beyond.
david butler has no position in any of the mentioned stocks. The Motley Fool recommends CVS Health, CVS Health Corporation, and UnitedHealth Group. The Motley Fool has a disclosure policy.