The demographic crisis. It’s on the minds of many of the business world’s heavy hitters as the realization sets in that the developed world is not having enough children. Last summer, Tesla and SpaceX CEO Elon Musk called declining birth rates “the biggest danger civilization faces by far” in a post on X.com, arguing that the dynamic is creating an “underpopulation crisis” that will have far reaching consequences. And just this week, BlackRock CEO Larry Fink warned in his annual letter to shareholders that with populations aging in many nations worldwide, and workers retiring at younger ages, a “retirement crisis” is brewing that could stress social safety nets.
To their point, Americans are getting older, fast. In 1970, less than 10% of the U.S. population was over the age of 65. This year, that figure is sitting at roughly 18%, meaning a record percentage of Americans have hit retirement age. What’s more, says one of Wall Street’s top investment banks, it’s just going to get worse.
In a new report titled “Longevity in the US: Trends and Investment Opportunities” a team of Morgan Stanley economists and analysts said they believe the share of Americans older than 65 will hit 24% by 2060.
That’s not great news, considering aging populations tend to weigh on economic growth, decrease worker productivity, and burden government budgets, according to IMF research from well before the pandemic, in 2017. Economists for the Bank of International Settlements saw the negative impact of aging populations coming even earlier, in 2015—offering an advanced and unorthodox theory of how it would affect inflation (sending it higher than anytime since the 1970s, exactly what happened in 2022).
But there are opportunities in everything, even an aging world, as Morgan Stanley found. The bank’s analysts noted that as the U.S. population ages, the spending decisions of Americans over the age of 65—whose average net worth has soared in recent years—will become increasingly important. They added that investors that pay attention to these seniors’ spending habits may be able to secure a profit by buying a few key stocks.
As one would expect, the 65-plus age demographic spends far less on transportation, apparel, and education services than other generations, but far more on health care and housing. Morgan Stanley’s analysts argued that senior housing and at-home healthcare companies should benefit from these spending trends as seniors make up a larger and larger portion of the population.
UnitedHealth Group
UnitedHealth Group, the health insurance and services behemoth which took the number 10 spot on the Fortune Global 500 in 2023 and boasts a market cap of over $450 billion, is a top pick for Morgan Stanley for a few key reasons.
First, the U.S.’ aging population is “driving record demand for healthcare services,” but instead of helping hospitals like some might imagine, insurance companies and at-home or managed care providers are the ones really benefiting.
Morgan Stanley noted that hospitals saw a 9.5% increase in expenses in 2021, and only managed to collect roughly 27% of the $2.6 trillion they billed for services. On top of that, higher costs at hospitals have driven many consumers to outpatient facilities and at-home care.
The home care market has grown at an annualized rate of 2.8% over the past five years to $132 billion in 2023, and Morgan Stanley expects that growth rate to jump to 2.9% through 2031. “Care delivery is increasingly moving from traditional brick and mortar hospital settings to at-home care with innovative care delivery companies leading the way,” the investment bank’s analysts wrote.
This shift to at-home care should benefit UnitedHealth group, which owns primary, hospice, palliative, and at-home care providers and enablers including, Optum, LHC Group, Landmark, Summit Home Care, and naviHealth.
“Industry leaders like UNH and Humana (not covered) have built horizontally integrated home health offerings,” Morgan Stanley’s team noted. “In our coverage, UnitedHealth Group (UNH) looks best positioned to capitalize, targeting home health care as a growth driver and making major investments across the space.”
The investment bank has a buy-equivalent “overweight” rating and a $618 price target on shares of UnitedHeath Group.
Welltower Inc. and American Healthcare REIT, Inc.
The other way to play the U.S.’s aging population is through healthcare REITs that own and/or manage the healthcare facilities that many seniors will need to visit during their twilight years. Morgan Stanley expects the number of residents in independent living, assisted living, and skilled nursing housing to rise from roughly 1.7 million today to 2.1 million by 2030. And with inventory growth for every type of senior housing at “multi-year lows,” demand for senior housing should exceed supply.
“We favor senior housing exposure given limited supply and demographic tailwinds are driving solid growth in occupancy and rents,” the investment bank’s analysts explained.
To their point, senior housing occupancy rates recovered dramatically from their first quarter 2021 lows of around 80% to 87% in the fall of last year. And senior housing rent growth was sitting at 5% in the third quarter of 2023, compared to just 0.5% in the first quarter of 2021. This should help boost healthcare REITs’ revenue.
The Morgan Stanley team went on to describe Welltower, a roughly $53 billion REIT that invests in senior housing, post-acute care, and outpatient medical facilities, as they’re “preferred large cap play” in the senior housing space. They noted that the company has 87.5% of its properties within a 5-mile radius of a hospital. As more hospitals face financial headwinds and increase their prices, that could benefit Welltower’s senior housing portfolio.
American Healthcare REIT, a $1.7 billion market cap real estate company that invests in outpatient facilities, skilled nursing facilities, and other types of senior housing, is the analysts’ “preferred small cap” play to take advantage of the U.S.’s aging population. The group noted that many states have made it nearly impossible to construct the type of senior housing and outpatient medical facilities that American Healthcare REIT operates, with some requiring providers to get a Certificate of Need (CON) to buy, expand, or alter any home health, hospice or senior living operations.
As a result of demographic headwinds and a lack of senior housing supply, Morgan Stanley expects 10% funds from operation growth—a metric used to measure REITs’ profitability—in 2025 and 2026 from both American Healthcare REIT and Welltower, compared to just 2% to 4% for REITs in general.
The investment bank has a buy-equivalent “overweight” rating and a $102 price target on shares of Welltower. American Healthcare REIT, Inc. was also recently tagged with an “overweight” rating and a $17 price target.
