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Investing in your 50s can be somewhat confusing.On one hand, you'd probably want to be somewhat conservative with the nest egg you've managed to grow over the past one, two, or three decades. If retirement is a matter of five-to-15 years away, you don't want to risk losing a large percentage of your capital.
On the other hand, the average life expectancy in America has jumped nine years since the mid-1960s, and you'll need to continue growing your nest egg at a pretty decent clip if you don't want to outlive the money you've set aside for retirement. It's not easy finding investment opportunities that offer a solid foundation while providing what seems like an above average potential for wealth creation.
Though it's often shunned for its volatility and complexity, the healthcare sector could be just what the doctor ordered. By focusing on companies that are healthfully profitable, people in their 50s should be able to take advantage of an aging population that'll require medical care, as well as the inelasticity of medical services (i.e., we can't control when we get sick or what ailment we get), which leads to regular demand for pharmaceuticals, devices, and other healthcare services.
If you're in your 50s, these healthcare stocks could be perfect additions to your portfolio.
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Johnson & Johnson
There's arguably no healthcare company that offers a better balance of safety and growth than healthcare conglomerate Johnson & Johnson (NYSE: JNJ).
Johnson & Johnson's strength derives from its revenue diversity and innovation. The company is comprised of three operating segments -- consumer health products, medical devices, and pharmaceuticals -- that each offer something attractive to the whole. Consumer health products have weaker margins and slower growth prospects, but its brand-name products, such as Band-Aid, have excellent pricing power and predicable cash flow. Medical device margins have been weaker recently, but they have a long-tail growth opportunity with the Census Bureau predicting a near-doubling in the elderly population between 2012 and 2050. Lastly, pharmaceuticals provide the bread-and-butter growth and gross margins for J&J.
Innovation, especially within its pharmaceutical segment, is another key driver. J&J outlined its plan last year to file for the approval of 10 new potential blockbuster drugs by 2019. It's already had multiple myeloma drug Darzalex approved, and remains on track to reach its goal. For context, of the 14 novel compounds it brought to market between 2009 and mid-2014, half went on to generate $1 billion in annual sales, or what's known as "blockbuster sales" within the industry.
As one of just two publicly traded companies left with an AAA credit rating, and bearing one of the longest streaks of dividend increases (54 years in a row), Johnson & Johnson and its 2.8% yield could be a perfect stock for 50-somethings.
Image source: Intuitive Surgical.
Since growth is still very important for investors in their 50s, I present to you robotic surgical device maker Intuitive Surgical (NASDAQ: ISRG). You won't find any dividend income potential with Intuitive Surgical for the time being, but you do get plenty of growth potential and a big helping of competitive advantage.
The heart and soul of Intuitive Surgical's success is its razor-and-blades business model. Its da Vinci surgical systems aren't cheap, with an average price point of $1.54 million as of the fourth quarter, but this one-time cost isn't where the company makes its top margins. Once a machine is sold, Intuitive Surgical benefits from the instruments and accessories used with each procedure, an annual service agreement, as well as training and software updates. Once the company has its robotic surgical devices in place, it becomes extremely difficult for hospitals to switch away, leading to a solid recurring revenue model.
Intuitive Surgical also has more than 3,800 da Vinci systems installed, which is a testament to the more than one decade it's spent training surgeons and building its base. Intuitive Surgical is so far ahead of its closest robotic surgical competitors in terms of installed base that it's like comparing a basketball to a marble. Even if Intuitive Surgical's competitors rolled out new devices, the time it takes to train surgeons, and the expense of developing and marketing the devices, isn't going to make much of a dent in what could aptly be called an insurmountable market share lead for Intuitive Surgical in robotic-aided surgery.
With the real possibility that its machines could push into colorectal, thoracic, and ventral hernia surgeries in the coming years, the sky is the limit for Intuitive Surgical and its shareholders.
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At the other end of the spectrum, real estate investment trust HCP (NYSE: HCP) provides a big helping of annual income (with a 5.2% dividend yield), which should be of particular interest to more conservative investors.
HCP is a REIT that invests in healthcare-based buildings, such as hospitals, life sciences, and medical offices, then turns around and leases these buildings over lengthy periods of time. HCP writes up its leases in such a way that they keep up with, or outpace, the rate of inflation, and given that they're long-term, HCP's cash flow is usually very predictable (something Wall Street analysts and investors tend to appreciate). As an added bonus, HCP sells some of its assets from time to time to generate cash and net investment gains on its properties.
In addition to long-term contracts and predictable cash flow, HCP's biggest benefactor is that the long-term data is on its side. As discussed above with J&J, a near-doubling in the elderly population is likely going to mean steady growth in healthcare research via life sciences, the construction of new hospitals, and the need for more medical office buildings. Elderly people require more medical attention than younger adults -- that's a fact. If the elderly population doubles, the growth in demand for leasing medical buildings should give HCP substantial pricing power.
More recently, HCP completed its spinoff of Quality Care Properties, its skilled nursing and assisted living business, which had been dragging down its growth rate. With QCP now operating independently, we're liable to see more transparent reporting and faster growth rates from HCP.
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Finally, grabbing shares of the largest health insurance company in the U.S., UnitedHealth Group (NYSE: UNH), could be a smart move, even if the current health insurance landscape looks somewhat uncertain.
High premium inflation tied to the Affordable Care Act, coupled with UnitedHealth pulling out of 31 of 34 states in 2017 on the ACA marketplace exchanges, isn't likely to inspire confidence in too many investors. But there's a purpose for this move. UnitedHealth Group will have lost nearly $1 billion in aggregate over the past two years via individual ACA plans, meaning giving up a little bit in revenue next year will help its margins tremendously.
More importantly, you should understand that UnitedHealth is about far more than just the ACA. It's predominantly a commercial insurer and a large Medicare Advantage participant. The employer-sponsored insurance market dwarfs the individual market, and once again the elderly population is set to explode in the coming decades, meaning UnitedHealth Group continues to have ample pathways to grow its business even without a large presence in the individual marketplace.
It should also be considered that health insurance companies have exceptional pricing power in the United States. While there has been improved pricing transparency in recent years from insurers, as a whole insurers are able to pass along premiums and/or deductible increases as needed to ensure they stay profitable.
And, of course, don't forget about Optum, UnitedHealth's rapidly growing technology-enabled health services segment that's growing its earnings at a double-digit percentage pace.
Sporting a 1.6% dividend yield and full-year EPS that could nearly double between 2015 and 2019, UnitedHealth Group is a healthcare name worth strongly considering for your investment portfolio.
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Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.
The Motley Fool owns shares of and recommends Intuitive Surgical. It also recommends Johnson and Johnson and UnitedHealth Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.