No one ever said, “I wish I could pay more for health insurance.” And when was the last time your health insurance premiums went on sale? Never.
So you and I can probably agree – health insurance is too expensive.
If you’re buying health insurance, that’s a big negative. But if you’re buying health insurance stocks, it can be a huge boon.
We’re seeing that today. Stocks have had a challenging start to the year, as earnings seasons get into full gear. Yet certain sectors have remained fairly solid during this volatility.
And one sector in particular that represents opportunity for you today is the healthcare sector. I’ll show you why below, along with one simple way you can take advantage.
How Health Insurance Companies Weather Rocky Markets
As I mentioned, this earning’s season has shone a positive light on health insurance. More on that in a moment.
But first, this isn’t the first time we’ve exposed the insurance industry in these pages. If you’ve been reading Inside Wall Street since the beginning, you know what I mean.
My colleague Eoin Treacy addressed the broader insurance industry, including health insurance, in an excellent earlier piece. (Catch up here if you missed it.)
As he put it, the basic insurance company model is to make more money in premiums than it pays out in claims.
Eoin is right. And that’s especially true with the healthcare industry, including health insurance.
Over the past decade, health insurance premiums have skyrocketed. They’ve been growing faster than workers’ earnings and inflation. You can see this in the chart below.
Health insurance is often the highest monthly payment we have that isn’t linked to an actual asset. Think a mortgage payment for a house or a loan payment for a car.
But these high premiums are also one of the main ways by which health insurance companies weathered Covid-19.
That’s because health insurance companies have a captive customer base. And they can shape their incoming and outgoing cash flow as they see fit.
Think about it. If you have health insurance, would you give it up? Probably not. Now multiply that by the nearly 300 million other people in the U.S. who also have some kind of health insurance.
That helps health insurance companies weather rocky periods in the markets. That’s why the industry has been less shaken by the current volatility. And today, there’s opportunity in this space for you.
This $2.7 Trillion Industry Is Getting Even Bigger
The U.S. healthcare industry is already massive. It involves insurance, medical services, and the manufacturing of medical equipment and drugs.
For 2021, its total revenue hit $2.7 trillion. That’s 13% of U.S. GDP.
As individuals and through government support, we spend $4 trillion on healthcare and insurance. That’s 20% of GDP… and it’s more in GDP terms than any other country.
In the coming years, it could get even bigger. That’s why we’re paying close attention to earnings reports from this sector.
First out of the gate reporting earnings for the sector was UnitedHealth Group. It’s the biggest health insurer in the world.
UnitedHealth Group beat earnings and revenue expectations. For 2021, it posted revenues of $287.6 billion. That’s a 12% increase over 2020.
Its two subunits, UnitedHealthcare and Optum, saw double-digit growth.
But here is what is really interesting. UnitedHealth Group is forging a trend… And other companies are following it.
It’s combining its premium-driven business (UnitedHealthcare) with the expansion of its technology-based health services (Optum).
On its website, UnitedHealth Group notes, “The future of digital health care holds tremendous potential.”
That’s true for the entire sector. And it touches one of the five core investment themes I’ve identified for you: Transformational Technology.
The size of the digital health market hit $141.8 billion in 2020. It could grow by more than 17.4% between 2021 and 2027. That’s largely based on the increasing popularity of healthcare IT.
You can see that growth in the chart below, broken down by the digital health sector.
And UnitedHealth Group wasn’t the only winner this earnings season. So was Anthem, the second-largest U.S. insurer.
Anthem reported a 106% surge in profit this morning. It posted double-digit growth in top and bottom lines. And it beat earnings and revenue estimates handily.
What This Means for Your Money
In short, the outlook for the healthcare industry is positive over the long term. And these tech advances will spur upside in certain healthcare stocks.
We have the backdrop of an aging demographic. And, even after you factor in the regulatory risks and Covid-related uncertainty that health insurance companies face… The sector is still going to be a cash-cow.
And in the current volatility, that spells opportunity for you.
Companies like UnitedHealth Group (UNH) and Anthem (ANTM) stand to profit… while also weathering the price swings in the markets.
While the S&P 500 is in the red over the past six months, these companies have held. They’re up 11% and 24%, respectively.
Happy investing, and I’ll be in touch again soon.
Editor, Inside Wall Street with Nomi Prins
P.S. Speaking of market volatility… The Federal Reserve’s comments late last year were a big driver for the turbulence we’re seeing. And today, the Fed will wrap up its first meeting of the year. I’ll be on Making Money with Charles Payne to share my thoughts on it. The show airs today at 2 p.m. ET on FOX Business, so be sure to tune in if you can.
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