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4 stocks I own to profit from wealthy retirees

Economic cycles can really challenge a country’s population. It’s obvious that economic cycles occur but it’s hard to identify exactly when they will happen. The people with wealth tend to manage a downturn ok, and continue spending on the things that are essential to them.

There aren’t many stocks on the ASX that are focused on the wealthier retirees, but I think these four stocks are the perfect way to profit from retirees who have a good amount of capital:

Challenger Ltd (ASX: CGF)

Challenger is Australia’s leading annuity provider with a market capitalisation of $7.35 billion.

To buy an annuity you need to have the money to give to Challenger. This automatically means that only wealthy Australians are customers of Challenger. It’s feasible that Challenger’s sales would increase during an economic downturn because retirees want a safer place for their money.

Challenger is trading at 19x FY17’s estimated earnings with a grossed-up dividend yield of 3.72%.

Healthscope Ltd (ASX: HSO)

Healthscope is Australia’s second largest private hospital operator with a market capitalisation of $3.8 billion.

Healthcare is a very valuable service because nearly everyone values their health over everything else, meaning they are willing to spend what it takes to remain alive and well. Private hospitals are aimed at people who are willing to spend more on a better experience and perhaps a better healthcare outcome.

Healthscope is trading at 20.5x FY17’s estimated earnings with an unfranked dividend yield of 3.38%.

Class Ltd (ASX: CL1)

Class is the software provider for self-managed superannuation fund (SMSF) administrators and it has a market capitalisation of $336 million.

It’s advisable to have a balance of at least a few hundred thousand dollars before deciding to open an SMSF. A retiree has to be quite wealthy to operate a SMSF, so the fee to use Class’ system of only a few hundred dollars is very reasonable and wouldn’t dissuade the accountant or SMSF from using Class. The amount of time it saves is worth the cost to everyone involved.

Class is trading at 55x FY16’s underlying earnings with a grossed-up dividend yield of 2%.

Japara Healthcare Limited (ASX: JHC)

Japara is one of the largest aged care operators in Australia with a market capitalisation of $549 million.

At a certain point it may become necessary for an elderly person to move into an aged care facility. If they have enjoyed a certain level of quality throughout their life, they will want to continue living that way in one of Japara’s higher-quality properties. A recession wouldn’t want to make them move.

Japara is trading at 18x FY17’s estimated earnings with a grossed-up dividend yield of 7.94%.

Foolish takeaway

I think focusing on companies that provide services to the wealthier end of the retiree market is a good strategy, particularly with the ageing tailwinds that accompany that strategy.

This stock is another business that could benefit from the growing retiree population, it also has a huge dividend and is expanding overseas.

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Motley Fool contributor Tristan Harrison owns shares of Challenger Limited, Class Limited, HEALTHSCPE DEF SET, and JAPARA DEF SET. The Motley Fool Australia owns shares of Challenger Limited and Class Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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