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Steven Chen
Steven Chen
Articles (117)  | Author's Website |

Urbem’s 'Megatrend' Series: Aging Population

The silver economy will be providing golden opportunities for the right businesses

Many investors are tempted to jump on the flavor-of-the-week stocks in the hopes of profiting from their immediate momentum, turning themselves into “speculators” in our dictionary.

At Urbem, we believe that higher returns with lower risks can often be found in businesses levered towards next-generation products and services. Megatrends are an excellent source of long-term secular growth for companies with sustainable competitive advantages, and hence, they make time a more helpful friend for shareholders. The aging population is one of them.

According to one research study by Bank of America (NYSE:BAC), people older than 65 will soon outnumber children younger than 5 for the first time on this planet. As birth rates continue to fall and life expectancies worldwide continue to rise, two billion people are expected to be in the 60+ age group by 2050, more than doubling the size of this age group from back in 2015.

Longer lifespans will inevitably lead to changes in consumer habits. For example, more seniors will be spending more “silver dollars” on travel, benefiting hotel franchises such as IHG (IHG) (LSE:IHG), Marriott (MAR) and Choice Hotels (CHH). While we like all three names here, Choice Hotels would be our top pick for its consistently superior return on assets (see below). Additionally, we believe that the high switching cost of its franchisees, brand, scale in the midscale and economy segment dig an economic moat for the highly-profitable business.

Healthcare companies are also going to compete to seize golden opportunities in the expanding silver economy. In this space, we favor Novo Nordisk (NVO) (OCSE:NOVO B), which has been capitalizing on diabetes treatments, and Intuitive Surgical (ISRG), a pioneer in robotic-assisted minimally-invasive surgery.

As is shown below, both businesses have delivered over 10% in annual returns on assets for more than a decade now.

An aging population may also impact business successions and operations, at least in some regions like Japan. This is where Nihon M&A Center (TSE:2127) comes into play. Japan’s largest independent merger and acquisition service provider mainly targets small and medium-sized enterprises (referred to as “SME”), which face unprecedented challenges, including hiring younger leaders, low desire/qualification of family members to take over and an aging workforce. Being the backbone of Japan’s economy, the SME segment represents 99 out of 100 Japanese businesses and, in aggregate, employs approximately 70% of the nation’s total workforce.

Thanks to its vast deal network and decades-long reputation, Nihon M&A Center possesses the durable competitive advantage that enables the company to outperform its peers, including Strike Co. (TSE:6196) and M&A Capital Partners (TSE:6080), in terms of return on capital (see below).

Disclosure: The mention of any security in this article does not constitute an investment recommendation. Investors should always conduct careful analysis themselves or consult with their investment advisors before acting in the financial market. We own shares of Novo Nordisk, Intuitive Surgical and Nihon M&A Center.

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About the author:

Steven Chen
Steven CHEN is a quality-focused investor (with bottom-up opportunistic approaches), an ex-hedge fund analyst on Wall Street, a serial entrepreneur, computer scientist, and free-market capitalist.

Steven is the Managing Partner of Urbem Partnership, a value/quality-focused investment partnership fund (www.urbem.capital), and Urbem Capital, the research boutique that focuses on the highest-quality 0.1% of all public companies worldwide.

Steven can be reached at [email protected] or through LinkedIn.

Visit Steven Chen's Website


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