What are healthcare stocks?

What are healthcare stocks?

Beginner

1st September, 10:14
Updated: 23rd September, 07:20

Thinking of investing in companies that provide vital services to people all over the world?

It’s worth taking a look at healthcare (or pharmaceutical) stocks. In this lesson, we’ll explain what healthcare stocks are, go through their typical characteristics, and let you know where to go in order to invest. We’ve also prepared a list of healthcare stocks you can consider for potential buys.

What are healthcare stocks?

Pharmaceutical and healthcare stocks are stocks of companies that conduct their business in the $7.8 trillion healthcare sector. The broad range of stocks in the healthcare sector include for-profit health insurance providers, medical device makers, pharmaceutical companies, and many others. 

Why do investors look for healthcare stocks?

Investors want healthcare stocks that will show steady growth over time, but they also want to find innovative companies with a focus on research. Healthcare breakthroughs have done everything from cure diseases to extend human life spans over the past century. No other industry can rival healthcare’s transformative impact in extending and improving people’s lives, and that impact gives healthcare stocks the potential for enormous gains.  

What are the defining characteristics of healthcare stocks?

1) They operate in the healthcare sector

In addition to the types of healthcare companies mentioned above, you can add hospital operators, home health care companies, pharmacy benefits managers, long-term care facilities operators, and numerous others to the list of what constitutes ‘healthcare stocks.’ This makes the term very broad, so you’ll want to figure out exactly which part of the healthcare industry you want to invest in.

2) They invest heavily in research and development

It takes a lot of time, effort, and money to bring a new drug to market. Companies must pay top dollar for scientists who can create new compounds in the lab, undergo multiple rounds of rigorous clinical trials, and pass numerous levels of government regulations and verification to ensure that the new drug is both safe and effective.  

3) The sicker people get, the better the outcomes for healthcare stocks

In much of North America, Europe, and Asia, populations are aging rapidly, one of several societal trends that boost healthcare stocks’ profits. Also, the longer a particular medication or medical device prolongs the life of a patient with chronic illness, the more money the companies that make those medications and devices stand to make.

4) They’re always in demand

Humans will always get sick and always need medications to cure those illnesses, ensuring that healthcare companies’ products and services are always in demand. Aging populations in many western countries, combined with health epidemics ranging from cancer to obesity, heighten the need for a wide range of healthcare companies. Fom health insurance providers to medical device makers and pharmaceutical firms, as long as people get ill there will be a need for healthcare companies.

Here are some examples

If you’re considering adding some healthcare stocks to your portfolio, then here are a few major companies in the sector you might want to consider. 

1) Regeneron Pharmaceuticals (REGN)

Regeneron has been one of the stock market’s hottest healthcare stocks, surging to an all-time high in June 2020. The pharmaceutical maker’s stock has surged in large part thanks to a deal that will see the US government fund 80% of the costs for Regeneron to develop and manufacture treatments to fight COVID-19.

2) Quidel (QDEL)

Another stock that’s surged in price thanks to its work treating COVID-19, Quidel sells tests that can detect the novel coronavirus (as well as tests for influenza and numerous other conditions). The stock more than tripled from December 2018 to June 2020.

3) AmerisourceBergen (ABC)

The drug distribution company handled 20% of all the pharmaceuticals sold and distributed in the United States in 2019, achieving the #10 rankings on the Fortune 500 list that year with more than $153 billion in annual revenue. The stock jumped more than 30% from its March 2020 lows to its levels in early June 2020.

4) DexCom (DXCM)

The medical device maker develops glucose monitoring systems for diabetes management. Its stock has been one of the most successful in the entire world recently, rocketing more than eightfold from October 2018 to June 2020.

How do I find healthcare stocks?

Several different websites offer screening tools that let you search for healthcare stocks based on parameters such as earnings per share and revenue growth. But you don’t have to go anywhere as you can also examine some of the best healthcare stocks right here on this site, thanks to our monthly lists of healthcare stocks on the rise.

Visit this guide for more information on how to find healthcare stocks > 

Now you’ve got your head around healthcare stocks, let us keep guiding you through the different types of stocks available to you. Click to check out our next lesson on financial stocks.

By Jonah Keri
Jonah Keri is a trader and analyst who spent 11 years at Investor's Business Daily covering the markets. He now writes about stocks, cryptocurrencies, and other investments for Invezz and about emerging technologies for private clients.
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