Individuals perceive longevity in different ways, from those with rose-tinted glasses to those who are pessimistic that positive, graceful aging is attainable. We try to maintain a healthy balance between the harsh realities of aging and the possibilities of living a long, productive and happy life. Interestingly, the business of longevity is top of mind for many money managers who actively pick equities. In this edition of Bird’s Eye View, Oppenheimer Funds Director of Equities George Evans sheds some light on the intersection of longevity and investing.
The Bionic Body: Listening for Opportunities
Amid all the uncertainty across the globe, there is one thing about which today’s investors can be absolutely sure: the world is aging. The number of people 65 and older is increasing by nearly one million per month. In fact, within the next five to eight years, there will be more “old people” than young children for the first time in history.1 And being old isn’t what it used to be. If 40 is the new 30, 80 is the new 60. In short, more people are living to what had been considered “old age,” those “old people” are living longer, and aging is not for sissies!
As age sharpens wisdom (in theory, at least), it diminishes our physical prowess. Muscles weaken, reflexes slow and sooner or later, nearly all of us will need help to hear, see and chew. The unprecedented number of people now confronting this reality is creating investment opportunities. Let’s take a look at just one example: hearing.
It is estimated that 30%-40% of all people over 65 have lost some of their hearing.2 And as a result of Baby Boomers having listened to rock ‘n’ roll music at extreme decibel levels for decades, the percentage of hearing impaired people is likely to rise. Think this bodes well for hearing aids? I believe it does. And if vanity is also an issue—and it IS an issue, as many people who refuse their doctor’s advice to use a hearing aid cite appearance as a primary deterrent—it bodes even better for hearing implants.
Let’s take a look at one company that is addressing these needs—Sonova (ticker: SOON VX) — a Swiss corporation that is one of the world’s leading manufacturers of hearing aids. They are also a leader in the research, development and manufacturing of cochlear (inner ear) implants. Cochlear implants are often referred to as a “bionic ear.”
Many industries and companies have suffered through the Great Recession. But at Sonova, revenue growth has averaged nearly 9% over the past five years. The company’s operating margins have ranged from 23% to 29%, net margins have held steady at 14% to 15% and they have almost no net debt (less than 5% of equity). Instead, the company funds growth with operating cash flow. On top of that, it has been producing free cash flow at a steady rate of 4% to 5% of revenue. With a market capitalization of over 6 billion Swiss francs (or 6.5 billion U.S. dollars), Sonova is a good-sized company, although sufficiently small to offer the potential of continued growth.3
In an aging world, we will see the emergence of bionic bodies. Some may find this disturbing, others amazing. We hope to find it profitable.
1. U.S. Census Bureau, “An Aging World: 2008”, June, 2009 2. http://www.chchearing.org/about-hearing-loss/facts-about-hearing-loss 3. All data from Bloomberg as of June 20, 2012The mention of specific companies does not constitute a recommendation by any Oppenheimer fund or by OppenheimerFunds, Inc. Certain Oppenheimer funds may hold the securities of those companies mentioned. Read more from the series GrowthSpotting: The Art of Global Investing at http://blog.oppenheimerfunds.com/tag/growthspotting/
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