Few sectors are as resilient in uncertain environments as health care. This is because medications and health insurance are essential to the well-being of patients. Simply put, people need them. And given the growing global geriatric population, there’s reason to believe these healthcare items will become even more indispensable over time.
health insurer Health Lift (ELV -1.05%) and pharmaceutical company Novartis (New York Stock Exchange: NVS) they are two dominant health actions consider the purchase as a game of the inelasticity of the sector.
1. Health Elevation
If you haven’t heard of Elevance Health, that’s because it used to be known as Anthem, until it rebranded under its new name in March. Whatever the name, it’s a sizable company with 47.1 million medical members and another 22.6 million who have signed up for life, disability, dental, vision and Medicare Part D coverage.
For context, the company’s $113 billion market capitalization makes it the second largest purely health insurer behind United Health Group‘s (New York Stock Exchange: UNH) market capitalization of $471 billion. And given the encouraging outlook for the global health insurance industry, this is one of the best industries in which a company could be an established leader.
That is due to the growing geriatric population, which requires a high degree of monitoring and medical care. Approximately 10% of the world’s population is over 65 years of age, which is often classified as geriatric. This is a big part of why the global health insurance market could grow 4.6% annually, from $2.8 trillion in 2020 to $3.9 trillion in 2027, according to market research firm Global Market Insights.
Elevance turned its $76.7 billion in first half revenue into $3.5 billion in net income. This is equivalent to 4.5% net margin, which shows that the health insurer is a profitable business. That’s why analysts believe Elevance will capitalize on rising demand for health insurance with 11.9% annual earnings growth over the next five years. For context, that’s only slightly below the health plan industry’s average annual earnings growth projection of 12.6%.
The company’s 1.1% dividend yield is moderately lower than the S&P 500 return of 1.6% of the index. but with him dividend payout ratio Projected below 18% in 2022, the health insurer’s dividend growth should offset its lower early performance. This explains why I think Elevance Health’s dividend will grow at an annualized rate in the teens for the next five to 10 years.
Best of all, the health insurer can be purchased at a forward P/E ratio of 14.8. This is slightly below the industry average of 16.1, making Elevance Health a convincing wealth compound to buy.
Due to the aging population and the launch of new drugs to treat rare diseases, the global pharmaceutical industry is projected to grow from $1.4 trillion in 2021 to $1.8 trillion in 2026. As one of the largest players Novartis, headquartered in Switzerland, will certainly benefit from this trend.
The company’s portfolio consists of 13 drugs that are on track to generate at least $1 billion in sales by 2022. These include the immune drug Cosentyx and the heart failure drug Entresto, which generated $2.4 billion and $2.2 billion in sales in the first half with double double-digit growth rates, respectively. This impressive drug portfolio is how analysts anticipate $52.4 billion in Novartis revenue this year.
And with 150 projects currently in various stages of clinical development, the company’s future looks promising. Future drug launches will more than offset lost revenue from upcoming patent expirations, which is why analysts forecast 4.1% annual earnings growth over the next five years.
Novartis’ 4.1% dividend yield is nearly triple the return of the S&P 500 Index. With the term payout ratio expected to be just under 50%, the company should have no difficulty further increase its dividend in the coming years.
Y investors looking for passive income it can grab Novartis stock at a P/E ratio of 12.3, which is just above the industry average of 10.7, and it’s not an unreasonable premium to pay for a world-class pharmaceutical stock like Novartis.