3 stocks set to capitalise on rising healthcare demand

Robert Stephens, CFA, discusses why these three FTSE 100 shares could experience improving operating conditions.

Demographic changes have the potential to provide healthcare companies with a tailwind in the long run. The world’s population is growing in size, ageing at a fast pace and is also increasingly choosing to live in towns and cities, rather than in the countryside.

The impact of these changes is likely to be rising demand for a range of healthcare products and services. Therefore, the growth potential of FTSE 100 healthcare stocks such as AstraZeneca (LON:AZN), GlaxoSmithKline (LON:GSK) and Smith & Nephew (LON:SN) could improve.

Demographic changes

World population growth is currently 1.1% per annum. This may not seem to be particularly high, but it is expected to lead to an increase in the world’s population of around 26% by 2050. This means that there are expected to be an additional two billion people on earth within the next 30 years.

At the same time, the world’s population is ageing. In 1955, the world’s median age was 23. Today, it stands at 30, and is expected to rise to 36 by 2050. A larger proportion of older citizens could mean that the prevalence of a range of non-communicable diseases (illnesses that cannot be passed from one individual to another, such as cancer) is likely to be higher.

This trend could be exacerbated by urbanisation. At the moment, 4.4 billion people live in urban areas, but this figure is expected to rise to 6.7 billion over the next 30 years. Urban environments can cause an increase in noncommunicable diseases, such as through poor air quality, which may further impact on demand for products used to treat them.

Investment opportunities

Investing in healthcare companies could be a means of capitalising on a rising and ageing world population that is becoming increasingly urbanised.

AstraZeneca, for instance, has gradually rebuilt its product pipeline in the last few years after losing patents on key drugs. Its recent quarterly updates suggest that it is now delivering consistent earnings per share growth, and could be well-placed to react to rising demand for a range of diseases over the long run.

GlaxoSmithKline is making changes to its business model. For example, it has merged its consumer healthcare businesses in a joint venture with Pfizer. Its pipeline appears to offer long-term growth potential, with it having 41 new medicines in development. A 7% increase in its adjusted earnings per share in the first nine months of the current year suggests that its revised strategy is being successfully implemented.

Smith & Nephew’s orthopaedics segment could be a beneficiary of an ageing population. The medical technology business is focusing on fast-growing markets across the world where its wound management and sports medicine & ear, nose and throat segments can capitalise on unmet clinical needs through innovation.

Outlook

Current projections for world population size, age and location may not prove to be exact. However, the trends of recent decades show that demand for a range of healthcare-related products and services is likely to increase over the long run. Therefore, investing in the sector through companies that are positioned to benefit from possible population changes could be a profitable move.