Why I think the NIB share price is a top long-term buy today

This looks like a healthy opportunity to me.

| More on:
A doctor appears shocked as he looks through binoculars on a blue background.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The NIB Holdings Limited (ASX: NHF) share price looks like an attractive long-term investment opportunity to me.

I don't mind short-term volatility with a company like this one because the ASX healthcare share is an effective way to play a strong investment trend, in my view.

It can be tricky to find investment ideas that can truly play the healthcare theme because some companies only 'tap' one area of the sector. Certain treatments or technology may be challenged by a competitor. For example, just look at the pain being suffered by CSL Limited (ASX: CSL) and Resmed (ASX: RMD) amid the rise of 'weight loss' drugs like Ozempic.

Here are the three main reasons I think now is a good time to invest at the current NIB share price.

Broad exposure to the health industry

I believe NIB is an effective way to access healthcare (spending) exposure because it's used for a wide variety of healthcare reasons, and it can generate earnings from people when they're not spending as well. Additionally, people earning above a certain income are 'encouraged' to get private health insurance just to avoid the Australian Tax Office's Medicare levy surcharge.

In my opinion, NIB is an effective 'picks and shovels' choice. What does that mean? In the olden days, people would try to find a commodity such as gold. If they found gold, they could be rich, but equally, they might not find anything at all.

However, the people selling picks and shovels to those miners would gain business and make money, whatever the outcome. It wasn't a high-risk industry, but it was a play on the gold rush.

Health spending is expected to keep rising (including as a percentage of GDP) for many years to come, and I believe healthcare insurance is an effective way to ride that trend. It doesn't require the business to 'strike gold' on a treatment or continue having the best health-related device.

It seems like a smart move by the business to expand in areas that are similar to what NIB currently offers and where spending could rise, such as NDIS businesses and travel insurance.

Population growth helps

I like investments that benefit from population growth. Whether we agree or not with the large annual increases in Australia's population, there are some industries that are clear beneficiaries.

The bigger the Australian population, the more likely it is that the NIB's Australian Resident Health Insurance (ARHI) membership can keep growing and boost earnings.

In FY23, the NIB ARHI membership increased by 4.7%, which is the strongest result since FY15 and more than double the anticipated industry growth. This will likely support the NIB share price.

In addition, the company is benefiting from an influx of international workers following the end of COVID-19 border closures. In FY23, international inbound health insurance saw policyholder and premium growth of 15.7% and 22.4%, respectively.

Increasing scale can help the business deliver stronger earnings over time, in my opinion. In FY23, the NIB underlying operating profit increased by 11.1% to $263.2 million.

Valuation and dividend

Since 21 June 2023, the NIB share price has declined by almost 20%, making it quite a bit cheaper than it used to be.

According to the earnings forecast on Commsec, the company is valued at 17x FY24's estimated earnings and less than 16x FY25's estimated earnings. I don't think this is a demanding price/earnings (P/E) ratio for a long-term growth business.

The dividend is projected to keep growing. In FY24, the grossed-up dividend yield could be 5.6%, and in FY25, the grossed-up dividend yield could be 6%. The rising dividend can help shareholder returns, which is another positive factor.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended CSL and ResMed. The Motley Fool Australia has positions in and has recommended ResMed. The Motley Fool Australia has recommended CSL and NIB Holdings. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Healthcare Shares

Scientist with headache, stress and fatigue with woman, overworked with overtime for science breakthrough. Medical research, scientific innovation and senior female, burnout and migraine in lab.
Healthcare Shares

Why is the Mesoblast share price in a trading halt?

Is Mesoblast raising funds again? Let's find out.

Read more »

A woman reclines in a comfortable chair while she donates blood holding a pumping toy in one hand and giving the thumbs up in the other as she is attached to a medical machine to collect her blood donation.
Healthcare Shares

The CSL share price return tripled the ASX 200 in November

November saw a very healthy return for CSL shares.

Read more »

A male doctor wearing a white doctor's coat shrugs and holds his hands up to indicate the unimpressive CSL share price as a result of OOVID-19
Share Market News

Here's why you might have just bought Healius shares

Two of the most popular super funds just loaded up on this healthcare stock.

Read more »

Doctor doing a telemedicine using laptop at a medical clinic
Healthcare Shares

Here's why this ASX 200 healthcare stock is roaring 13% higher on Wednesday

This healthcare company is outperforming every other stock within the ASX 200 today.

Read more »

A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop

Could CSL stock be a millionaire-maker at $261

Does the exceptional biotech company still harness the power to make an investment today worth a million in the future?

Read more »

Two happy scientists analysing test results in a lab
Healthcare Shares

Why are Mesoblast shares charging 5% higher today?

This beaten down biotech is having a strong session. But why?

Read more »

Cropped shot of an attractive young female scientist working on her computer in the laboratory.
Healthcare Shares

Healius share price rallies amid corporate reset

An outgoing chair and a revitalised balance sheet. Healius is undergoing a makeover.

Read more »

Cropped shot of an attractive young female scientist working on her computer in the laboratory.
Healthcare Shares

Imugene share price jumps 32% on FDA news

Here's why this biotech is having a strong start to the session.

Read more »