The healthcare industry is among the fastest-growing in America
today. The industry is fueled by a variety of factors that include our aging population, our growing population, the increasing rate of chronic disease within our population, and our growing need for new types of treatment.
The outlook for growth within the healthcare industry has led the Healthcare Select Sector SPDR (XLV) to new all-time highs and the run is far from over. If anything, healthcare spending is expected to accelerate over the next three years and top $10 trillion globally by 2022. In this context, the idea of buy-high and sell-higher is only too right.
Cardinal Health, Inc: A Diversified Play On U.S Healthcare Trends
Cardinal Health, Inc (CAH) is a diversified play on U.S. healthcare trends. The company operates in two segments that amount to one thing; customized solutions for providers and facilities of all varieties.
The pharmaceutical segment manufactures and distributes generic and branded pharmaceutical products, the Medical segment does the same for medical devices.
Revenue in the last quarter was up 6% on a non-GAAP basis and driven by increased sales in both segments. Pharmaceutical sales are attributable to improvements in distribution and specialty solutions while the Medical segment saw organic growth across all divisions. One division of note is the Cardinal Health at Home business, a business focused on delivering outpatient services directly to those in need.
The analysts are expecting Cardinal to grow non-GAAP EPS at a rate near 5% over the next couple of years, not really enough to get a stock moving, but that’s not the only thing driving this free-cash-flow machine. Cardinal Health is a Dividend Aristocrat with over 23 years of distribution increases under its belt. With a payout ratio in the low double-digits, it is certain the company will continue increasing the distribution for many more years.
One risk for Cardinal Health now is its involvement in the Opioid Crisis. As a distributor of pharmaceuticals including Opioids, it is on the front-lines of the battle. The good news for investors is that, so far at least, the impact on Cardinal has been limited. Another risk is tightening margins but again, Cardinal is navigating those waters with aplomb.
The Technical Outlook For Cardinal Health
On a technical basis, Cardinal Health is fast approaching its one-year high. Resistance may be strong at this level but the charts suggest this rally is not over. The weekly charts are showing a strong convergence with MACD momentum that points to rising prices over the long-term. In the near-term, shares of Cardinal may continue to consolidate at the current level or even pull back to support so traders are cautioned not to enter too soon, or too aggressively.
National Healthcare Corporation (NHC): Well-managed Senior Housing
Experts at the Population Reference Bureau estimate the number of Americans over 65 will double over the next 40 years. This means the need for senior housing and operators of senior care facilities is going to double. While the owners of those facilities (REITs like Ventas-VTR) are struggling with growth, well-managed operators of those facilities are not.
High demand for senior housing is driving up the cost for care at established facilities and that is fueling steady growth for National Healthcare Corporation (NHC). While NHC is by no means a headline-inducing growth-story, it is growing at an average of 2-3% annually. What this company can boast about is its ability to provide consistent growth from quarter to quarter … and a safely growing dividend.
National Healthcare Corporation is America’s oldest, continuously operating, publicly traded senior housing company. It is also another dividend-growing superpower. Not yet a Dividend Aristocrat, this provider of managed senior housing and care is well on its way with 15 years of annual distribution increases. At 43%, the payout ratio is sufficiently low enough to ensure dividend increases long into the future.
The Technical Outlook For National Healthcare Corporation
Shares of NHC are moving higher along with the broad healthcare complex. At $86.50 the stock is less than 3% from its recently-set all-time high. The MACD and stochastic are consistent with the peak that has just formed, but also strongly bullish and points to at least a retest of the all-time high. Convergence in the MACD shows underlying strength in this market so any pullbacks in prices are likely to be met by buyers.
Companies Mentioned in This Article