With the global population projected to reach 9.7 billion by 2050, more individuals around the world will at some point require medical devices, prescriptions, or other medical care. And because the overall population is also growing wealthier, global per-capita health spending is expected to climb from $1,129 in 2019 to $1,515 by 2050, adjusted for inflation.
Let's dig into how these trends will benefit Medtronic (NYSE:MDT) and AstraZeneca (NASDAQ:AZN) and why each stock appears attractive right now.
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1. Medtronic
Medtronic is the largest pure-play medical devices company in the world with over 90,000 employees across more than 150 countries. The company's lifesaving medical devices treat dozens of diseases, ranging from irregular heartbeats to diabetes.
Medtronic's leadership in the medical devices industry has allowed the company to raise its dividend for 44 consecutive years, which easily makes it a Dividend Aristocrat. And this streak is positioned to continue for two reasons. First, Medtronic's dividend payout ratio is set to be 44.2% for this fiscal year. That still enables the company to retain enough capital to reinvest in the business, which will drive the earnings growth necessary to support a growing dividend.
Second, a promising outlook for the medical devices industry bodes well for Medtronic. It's anticipated that growth of the global medical devices industry will compound at 5.4% annually to $658 billion by 2028 as a result of more surgical and diagnostic procedures. As the industry leader, Medtronic should be the greatest beneficiary of this trend. Thus, it will come as no surprise that analysts expect 11% annual non-GAAP, diluted earnings per share (EPS) growth for the company over the next five years.
Investors can buy up shares of Medtronic and its market-beating 2.4% dividend yield at a price-to-earnings (P/E) ratio of only 18. Along with its robust growth prospects, this could make the Medtronic's stock a great buy for long-term investors.
2. AstraZeneca
The second healthcare stock to consider buying right now is AstraZeneca. With a $182 billion market capitalization, the U.K.-based giant is the ninth-largest pharma company in the world. And it is likely to do well in the years ahead for a couple of reasons.
First, the pharmaceutical business itself is primed to do well in the years to come. Due to the richer and increasing global population that I noted above, the industry is predicted to grow 6% annually from $1.1 trillion this year to $1.38 trillion by 2026.
AstraZeneca is poised to take advantage of this trend in two ways. Its top-selling drug used to treat lung cancer, Tagrisso, only accounted for $5 billion, or 13%, of its total revenue in 2021. That's because the company's portfolio consisted of a dozen blockbuster drugs with at least $1 billion in sales last year. All six therapy areas of AstraZeneca's business had at least one blockbuster, which is a testament to the quality of its existing drug portfolio.
And based on AstraZeneca's pipeline of drugs in clinical trials, the company looks like it will remain well-diversified. This is supported by the fact that AstraZeneca recently had 177 projects in its pipeline at different levels of clinical trials. As you'd expect, these projects were spread across various treatment areas like oncology, respiratory and immunology, and rare diseases.
Taking AstraZeneca's current drug portfolio and pipeline into consideration, it's easy to understand why analysts are forecasting the company will generate 20% annual earnings growth over the next five years.
Meanwhile, investors can collect a market-topping 2.4% dividend yield from AstraZeneca. What's more, the shares are priced at a very reasonable P/E ratio of 15. For a stock with AstraZeneca's growth potential, this could be a good long-term investment.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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