- Healthcare stocks came into the forefront during the COVID-19 pandemic.
- The industry is made up of a wide range of companies, ranging from pharmaceutical companies to health insurance providers.
- While healthcare is an in-demand product, its regulatory risks may not make it an ideal choice for all investors.
- 5 stocks we like better than Gilead Sciences
The United States healthcare system includes two sectors: public endeavors like Medicare and Medicaid and private health insurance companies. Healthcare stocks represent a significant section of the U.S. economy, with many medical companies included in indexes like the S&P 500. But which medical stocks are worth the investment?
There are multiple types of healthcare stocks — and the best addition to your portfolio may vary depending on your risk tolerance and current exposure. Read on to learn more about 6 of the top healthcare companies dominating the market in 2023.
Types of healthcare stocks
Many types of stock make up the United States healthcare industry. Investing in multiple types of healthcare stock can limit your risk as an investor. Some of the most common healthcare stocks you can invest in include the following.
Health insurance companies
Health insurance companies are an important part of the healthcare industry, as healthcare costs in the United States are some of the highest in the world. Health insurance companies generate revenue primarily from premiums paid by their policyholders. When the policyholder needs medical care, the insurer will cover a portion of the cost, less any deductible or cost-sharing agreement with the customer. Health insurance is a highly regulated industry, and companies must comply with various laws and regulations depending on the product they're offering and the state.
Pharmaceutical health stocks research, develop and manufacture medications. Pharmaceutical companies are constantly developing new treatments and drug therapies. When companies find a viable treatment, a pharmaceutical company can apply for permission from the FDA to distribute and sell the treatment. Many pharmaceutical drugs have patent protection, which can provide the company with a period of exclusivity during which it can earn high profits.
Biotech companies typically use biological and molecular techniques to develop new drugs, therapies and medical technologies. These companies may focus on various areas, including genetic engineering and biometric-based personalized care. The COVID-19 pandemic highlighted biotech companies when RNA processes largely contributed to vaccination efforts.
Medical device companies
Medical device companies develop and manufacture devices used to diagnose, treat or prevent medical conditions. The definition of a "medical device" is all-encompassing and includes everything from simple tools like tongue depressors to complex devices like MRI machines. The United States makes up more than 40% of the world's medical device market.
Criteria for evaluating healthcare stocks
Investigating key indicators to gauge a healthcare stock's financial health is vitally important. Let's dig into the different criteria you would want to consider before investing in a healthcare stock.
A consistent upward trend in revenue signals market traction and potential for sustained profitability. This trajectory highlights an expanding market presence and the capability to increase profits, vital for investors eyeing long-term viability. You can easily research this on MarketBeat. Once you have looked up a stock symbol, clicking "earnings" and “revenue” provides an interactive revenue graph.
Delving into metrics like gross, operating and net profit margins unveils the company's prowess in converting revenue into profits. Elevated margins often signify superior operational efficiency and adept cost management, critical factors in financial robustness.
You can review profitability information by scrolling down the “stock analysis” page until you find the profitability matrix on the right-hand side of the page. All metrics within the profitability section are links to educational articles, so if you don't know what one of the statistics means, you can click it for more information.
Return on equity (ROE)
Return on equity (ROE) is a barometer of a company's efficiency in generating profits from shareholders' investments. Higher ROE implies effective capital utilization and robust management practices, appealing to investors seeking consistent returns. The return on equity is part of the profitability matrix used previously when discussing profitability.
A healthcare company's pipeline strength speaks volumes about its innovation potential and sustained growth in treatments and products.
- Drug pipeline: A robust pipeline housing promising drug candidates signals potential revenue influx from successful launches. Diversified and innovative drug portfolios position companies favorably for future growth and market resilience.
- Clinical trial success rate: A history of successful trials and regulatory approvals underscores the company's ability to introduce products. Positive outcomes boost confidence in research and development proficiency, instilling investor trust.
- Patent protection: Intellectual property safeguards a company's innovations. Strong patent protection shields revenue streams and fortifies a competitive edge, thwarting competitors from replicating proprietary technologies or treatments.
Understanding a healthcare company's competitive edge and market stance is pivotal in assessing its future growth prospects and sustainability.
- Market share: Substantial market presence within a healthcare segment showcases dominance and influence. Companies with significant market shares wield stronger negotiation power and competitive advantages.
- Competitive differentiation: Factors like unique technologies, brand reputation, or exclusive distribution channels set companies apart. These distinguishing elements entice investors seeking sustainable competitive advantages.
- Regulatory landscape: Navigating complex regulations is vital for operational stability. Companies adept at compliance display resilience, adapting to regulatory changes and mitigating potential risks.
Comprehensive evaluation strategy: Blending metrics and qualitative factors
A holistic approach merging quantitative metrics with qualitative factors forms a robust evaluation strategy for healthcare investments.
- Qualitative factors: Considering management expertise, industry trends and economic conditions supplements quantitative analysis. This holistic view offers a deeper understanding of a company's potential for investors.
- Investment goals and risk tolerance: Aligning decisions with personal objectives and risk tolerance tailors a balanced portfolio. Understanding risk appetite is crucial in navigating the fluctuating healthcare market.
Remember, meticulous research, financial advice, and diversified strategies are pivotal in mitigating risks and aiming for sustained success in healthcare stock investments.
Emerging opportunities in healthcare stocks
The healthcare industry constantly evolves, driven by technological advancements, scientific discoveries and patient needs. This dynamic landscape creates exciting investment opportunities in companies at the forefront of innovation.
- Science 37 Holdings Inc. NASDAQ: SNCE is a leading healthcare data and analytics solutions provider, empowering healthcare organizations to make informed decisions, optimizing care delivery and accelerating research advancements. SNCE's solutions are also widely used in healthcare research, enabling researchers to conduct large-scale studies and identify new insights into disease prevention, treatment efficacy, and patient outcomes. With its innovative solutions, strong customer base and expanding market reach, SNCE is well-positioned to capitalize on the growing demand for healthcare data analytics and real-world data insights.
- Vertex Pharmaceuticals NASDAQ: VRTX is a biotechnology company focused on developing innovative treatments for cystic fibrosis (CF). The company's groundbreaking CFTR modulator drugs have revolutionized CF treatment, significantly improving patient outcomes and life expectancy. Vertex is also exploring new treatments for other genetic diseases, including alpha-1 antitrypsin deficiency and Duchenne muscular dystrophy.
- Seagen Inc. NASDAQ: SGEN is a biotechnology company specializing in developing antibody-drug conjugates (ADCs) to treat cancer. ADCs combine a targeted antibody with a cytotoxic payload, delivering a potent dose of chemotherapy directly to cancer cells while minimizing damage to healthy cells. Seagen's ADC drugs have shown promising results in treating various types of cancer, including breast, bladder, and head and neck cancers.
- Regeneron Pharmaceuticals Inc. NASDAQ: REGN is a biotechnology company developing novel protein therapeutics. The company's proprietary VelocImmune® technology enables the rapid development of high-affinity antibodies for various therapeutic applications. Regeneron has several blockbuster drugs on the market, including Dupixent for severe asthma and eczema and EYELEA for age-related macular degeneration.
- Crispr Therapeutics AG NASDAQ: CRSP is a clinical-stage biotechnology company pioneering CRISPR gene-editing technology. CRISPR has the potential to revolutionize medicine by enabling precise and targeted modification of genes, offering new treatment options for various diseases, including genetic disorders, cancer, and infectious diseases. Crispr Therapeutics collaborates with leading pharmaceutical companies to develop CRISPR-based therapies for various conditions.
Evolving healthcare and investment opportunities
The healthcare industry constantly evolves, driven by technological advancements, scientific discoveries and patient needs. This dynamic landscape creates exciting investment opportunities for companies at the forefront of innovation. Here are some key trends shaping the healthcare industry:
- Precision medicine: The development of personalized medicine approaches that tailor treatments to individual patients' genetic and molecular profiles.
- Biotechnology and genomics: The rapid advancement of biotechnology and genomics leads to developing novel therapeutics and diagnostics.
- Digital health: The increasing adoption of digital technologies, including artificial intelligence, wearables, and telemedicine, to improve healthcare delivery and patient outcomes.
These trends create promising investment opportunities in companies developing innovative solutions to address unmet medical needs and improve patient outcomes. Investors should carefully evaluate companies' potential to capitalize on these trends and achieve long-term growth.
Six best healthcare stocks to buy now
With that overview of the healthcare stock sector, you now have enough information to compare medical stock options. Consider the following popular healthcare stocks for 2023 and beyond.
UnitedHealth Group NYSE: UNH is a well-managed and diversified healthcare company positioned to benefit from long-term trends in the healthcare industry. Its international company portfolio includes health insurance providers UnitedHealthcare and Optum, as well as its medical technology division. With over $440 billion in total market capitalization, UnitedHealth Group is a blue-chip healthcare investment with a dividend yield of around 1.25%.
Johnson & Johnson
Another major player in the healthcare sphere, Johnson & Johnson NYSE: JNJ, operates a series of pharmaceutical, medical device and consumer health companies. Johnson & Johnson's strong brand name recognition has contributed to its success, with a total market capitalization of over $430 billion. JNJ also features a more robust 2.48% dividend yield, which may make it a better choice for income investors.
Moderna Inc. NASDAQ: MRNA is a biotech company with a total market capitalization of $60 billion. Moderna develops several cancer vaccines using its mRNA technology, which came into the spotlight during its approval of the Moderna COVID-19 pandemic. These vaccines stimulate the immune system to target and destroy cancer cells, and they are currently in clinical trials for various types of cancer. Moderna is also currently developing a series of additional RNA-based treatments for respiratory illnesses.
Pfizer Inc. NYSE: PFE is a multinational pharmaceutical company that develops and produces a wide range of prescription drugs and vaccines. The innovative company maintains a total market capitalization of over $230 billion, with most of its revenue from proprietary research projects. Pfizer is also involved in several initiatives to improve global health, including donating billions of doses of its COVID-19 vaccine to low- and middle-income countries over the next several years.
Gilead Sciences Inc.
Gilead Sciences Inc NASDAQ: GILD, a biopharmaceutical company, focuses on developing treatments for viral diseases. Its primary area of investigation is human immunodeficiency virus (HIV), with several treatments in the pipeline aimed at helping patients manage their symptoms. Gilead Sciences also researches and develops treatments for other viral diseases, including hepatitis B and C.
Humana Inc. NYSE: HUM offers a range of health insurance products and related services. Most of Humana's products center around Medicare Advantage offerings, private alternatives to Medicare Part A and Part B. In April 2023, Humana had a total market capitalization of $65 billion.
Pros and cons of investing in healthcare stocks
Be sure to consider the pros and cons of investing in healthcare assets before deciding which stocks to buy.
Some of the benefits of investing in medical stocks include the following:
- Healthcare services are consistently in demand, and an aging population should increase further demand for these services.
- Healthcare companies often invest heavily in research and development, which can lead to the development of new treatments and medical technologies. These improvements can drive growth for investors if trials are successful.
- Most healthcare stocks also pay dividends, which provides you with an instant return on your investment as soon as you begin holding the asset.
While healthcare services are in demand, there are also a few industry drawbacks:
- Healthcare companies are subject to extensive regulatory oversight, creating uncertainty and risk for investors. Regulation changes, such as drug pricing or insurance coverage policies, can significantly impact your investment return and the viability of your investments.
- Biotechnology and pharmaceutical companies often have to conduct extensive clinical trials to bring new drugs to market. If these trials fail, investors can see sharp and sudden losses.
The prescription for success: Navigating healthcare investments
Investing in healthcare stocks demands a multifaceted approach, considering financial performance, pipeline potential, and market positioning. Companies like the ones presented in this article exemplify innovation in disease management. Understanding precision medicine, biotech, genomics, and digital health trends reveals promising investment avenues. However, regulatory uncertainties and clinical trial risks warrant careful consideration.
Balancing risk tolerance, aligning investment goals, and strategic diversification are crucial pillars in navigating this dynamic industry, ensuring a prudent approach to healthcare investments.
The following are a few final common questions investors may have about healthcare stocks.
What are the best healthcare stocks to invest in?
The best healthcare stocks to invest in vary depending on your risk tolerance and what you want from your investments. For example, UnitedHealth Group could be a strong choice if you're looking for blue-chip healthcare investments. Johnson & Johnson could be a better buy if you're looking for consistent dividends.
Are healthcare stocks a good investment right now?
Healthcare stocks can be a good investment. There is a consistent need for healthcare globally, and an aging population should further increase demand. However, these stocks may not provide the highest dividends, and they also showcase unique regulatory risks.
Why should you not invest in healthcare?
Healthcare stocks showcase exceptional regulatory risk. If pipeline or drug testing trials fail, investors could see sharp losses. Healthcare stocks also feature political risks, as companies often must adjust policies to fit state and federal law changes.
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