Healthcare stocks represent a diverse group of healthcare companies—the healthcare category is vast, encompassing a diverse range of companies from various product lines.
What Is the Healthcare Industry?
Almost everyone on the planet requires healthcare. People worldwide require medical services ranging from annual physicals and scheduled vaccinations to surgeries and lifesaving or life-improving treatments.
Americans spent $3.6 trillion on health care in 2018, according to the Centers for Medicare & Medicaid Services. This represents a 4.6% increase over the previous year or $11,172 per person. And it accounts for approximately 17.7% of the total US GDP (GDP). Healthcare companies make a lot of money in the United States. When global healthcare spending is considered, there is a lot of money to be made in this market.
Different Types of Healthcare Stocks
There are many types of healthcare stocks that you choose from.
Pharmaceutical Stocks
Pharmaceutical companies manufacture almost all over-the-counter (OTC) and prescription drugs. These companies devote significant resources and time to Research and Development to bring innovative medicines to market. Large pharmaceutical companies are less risky to invest in than their younger or smaller counterparts. You may come across a small group of healthcare shares known as “Big Pharma,” which consists of large-cap pharma companies.
Biotech Stocks
Biotechnology and pharmaceuticals are similar to each other in some ways. The sector focuses on how bodies function and respond to different treatments. The industry deals with genetics, hormones, and other advanced scientific research. Gilead, Amgen, Celgene, Biogen, Moderna, and CRISPR Therapeutics are the major players in this field.
Medical Supply Stocks
Medical device companies create devices used in patient care. Disposable gloves and thermometers are among the devices available, as well as artificial heart valves and robotic surgical systems. Medical device stocks include many health-tech and medical equipment stocks. There is always a demand for these devices, but a sudden surge in demand for any specific device is unlikely. These companies also devote a significant portion of their resources to R&D (Research & Development). Johnson & Johnson and Medtronic PLC are two examples of large medical equipment companies.
Medical Care Stocks
Healthcare providers are on the front lines when it comes to healthcare. Hospitals, physician practices, and home health care agencies are within this sector. HCA Healthcare, which operates hospitals, and Laboratory Corp. of America are two major players. Real estate trends also influence the profitability of this sector.
Health Insurance Stocks
Insurance companies are simply another term for managed healthcare. Any business that offers health insurance plans, whether through employer-sponsored or private insurance, the exchanges created by the Affordable Care Act, or socialized programs like Medicare and Medicaid, falls under this category. As almost everyone uses health insurance, these stocks are also less volatile.
The pros and cons of healthcare stocks
| Pros: | Cons: |
| Countless Opportunities The healthcare market is massive. It offers diversification across stocks with varying market caps and risk levels. As a result, you can find an opportunity that fits well in your portfolio objectives. | Exclusivity does not last. Suppose a company fails to innovate and only has one approved treatment. In that case, it can be painful for the company and its investors, reducing earnings growth and potentially leading to losses over time. |
| Interesting Industry Medicine and health care are scientific fields. You’ll probably find research on these topics more interesting than on banking, commodities, or other industries lacking the attractive factor. | Clinical tests can go wrong The company’s stock price may drop dramatically if these clinical trials fail. This increases the risk for investors considering purchasing clinical-development companies. |
| It makes you feel good When you invest in a healthcare stock, you’re investing in a company that has improved the lives of others at its core. | Economic While the industry as a whole has strong growth prospects, many providers and facilities are facing competition. Pricing and profits could fall as consolidation continues. |
Taking everything into account…
The healthcare industry is booming, and there are many investment opportunities. Not only do these stocks have the potential to increase the value of your portfolio, but they also have the added benefit of making you feel good about supporting a company that helps people live healthier lives.
However, not all stocks are the same. Investing in the healthcare sector could give you compelling rewards. Therefore, you must do research and stay up to date on the companies you’ve invested in.
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