By Lucas Downey, Contributing Editor, TradeSmith Daily
One of the most worrying trends in the U.S. is the staggering rise in health insurance and medical costs.
If you've been to the doctor recently, chances are you've been greeted with harsh realities. Coverage is shrinking... and your out-of-pocket expenses have soared.
According to health policy research firm KFF (formerly Kaiser Family Foundation), since 2000, health insurance costs have climbed more than twice the rate of inflation.
Most folks see this unfortunate reality as the new normal... something we must simply accept.
But we don't have to take these rising costs sitting down.
There's actually a way to not only hedge against out-of-control health insurance costs... but also make a handsome sum along the way.
The idea is simple...
If cash is leaving your pocketbook whenever you go to the doctor, it must be flowing somewhere.
Today we'll zero in on where. And show how you can take advantage of it.
The stock market allows ordinary folks incredible wealth-building opportunities. What I'll show you today is how you can easily take advantage of one of the largest growing expenses your family faces.
But before I do, let's review the decades of history that got us here.
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According to the National Health Expenditure Accounts (NHEA), U.S. health care spending reached a stupendous $4.5 trillion, or $13,493 per person, in 2022.
To put that into perspective, as a share of the nation's gross domestic product, health spending accounted for 17.3%.
Below plots the annual rate of total national health expenditures from 1970 to 2022:
The top line shows the overall costs of health care over the last 50 years. The bottom line in green shows the total spend per capita. The latter metric just clocked a fresh high of $13,493, even as absolute costs have fallen recently.
That is one of the steepest uptrends you'll ever see in a chart. And at first glance, it can appear like a never-ending infinite upward spiral.
That could be the case. But don't fret. Even if prices keep climbing unbridled, there's a simple way for you to ride along and profit as health care costs boom.
This is where you need to stop thinking like the patient and more like the practice.
You see, one of the biggest beneficiaries of rising health care costs is health insurance firms.
And betting on world-class insurer UnitedHealth Group (UNH) has been the golden ticket, rewarding shareholders year after year.
If you think the S&P 500 has been on a tear the last decade... wait until you see UNH. It's more than doubled the return of the popular benchmark:
That's right. You don't have to venture into high-growth tech for market-beating returns. You just have to stick with companies printing money year after year.
That's exactly what UnitedHealth Group has done. Consider these mind-boggling figures...
From 2015 to 2023, sales revenues more than doubled from $157 billion to $371 billion. Estimates peg 2027 sales at a whopping $534 billion.
Even more impressive is the earnings per share story. From 2015 to 2023, EPS exploded from $6.45 to $25.12. And the growth isn't stopping. 2027 is estimated to bring $40.32 in earnings per share.
When you consider how fast health care costs are rising, it shouldn't be a surprise. UNH is a huge beneficiary of this trend.
Now, you'd think this is where the story ends. But it's actually just beginning...
Well-run companies tend to reward their shareholders with their excess profits. By that, I mean they pay out dividends.
Dividends are a cut of the firm's profits distributed to investors simply holding the shares. I've mentioned the power of dividend growth investment many times, but UNH is one of the best dividend stalwarts in the world... offering investors an easy way to earn income that beats the rise in health care costs.
Referencing the KFF chart from earlier, I took the data a step further and plotted the annual growth rates of health care spend and compared it to UnitedHealth Group's annual dividend growth rate.
Folks, it will please you to know that UNH has rewarded investors with double-digit dividend growth in every single year since 2012... well outpacing the growth in health care costs.
Contrast that to only one year when health care expenditures grew above 10% (2020).
Those orange bars are investor treatment you won't find in a hospital waiting room. Few companies can boast similar numbers.
It shouldn't be surprising given the health care challenges we've faced as a nation for years.
As much as this is a macro story, it's also a data-driven story.
At TradeSmith, you know we rely on cutting-edge software to deliver us investing opportunities.
One example of this software is Jason Bodner's Quantum Score.
This quantitative rating shows us an overall health score for a company, through a combination of fundamental, technical, and money flow metrics.
UNH clocks in with a meaty rank of 62.5 on fundamentals – a strong sign of company health:
That puts us in the green on fundamentals, which is critical. The earnings and sales growth described earlier is sandwiched in this value, giving a strong indication of overall company fitness... the heartbeat.
The Technical Score is less exciting at face value, coming in at 35.3. This poor score indicates that the share price has suffered and is underperforming benchmarks like its sector and the major indices like the S&P 500.
Over the past few years, that's been true. The stock has gone nowhere in the past two years, falling about 10%.
But keep in mind that when you're a dividend growth investor, low share prices are a gift. Reinvesting dividends when the stock price is low amounts to accumulating more shares... allowing for more dividend income.
Whenever a rock-solid company pulls back, I get excited.
Yields increase.
Incomes jump.
Sizing up companies through the lens that only TradeSmith offers brings opportunities like UNH to life.
Here's to your health... better yet, here's to your WEALTH.
Regards,
Lucas Downey Contributing Editor, TradeSmith Daily
UNH is a $454 billion company. It's about one-sixth the size of the world's largest publicly traded company, Microsoft. And it doesn't have the benefit of being a major tech firm and all the growth potential that comes with that.
In other words, its growth has mostly played out by now.
That's written by my friend Jason Bodner, who created the Quantum Score I just showed you and designed a system around it that would've beat the market 7-to-1 over 25 years.
Every month, he shares a new growth stock recommendation in TradeSmith Investment Report with a perfect balance of growth and lower risk. Learn more about a subscription here.
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TradeSmith is not registered as an investment adviser and operates under the publishers' exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith's content do not constitute personalized investment advice. Any trading or investment decisions you take are in reliance on your own analysis and judgment and not in reliance on TradeSmith. There are risks inherent in investing and past investment performance is not indicative of future results.
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