Everyone needs healthcare. And when there's a service that everyone needs, there's a lot of money to be made for investors.
Healthcare spending worldwide is estimated at around $8.3 trillion. In the United States, around $3.8 trillion is spent on healthcare annually. These numbers will almost certainly be much larger by the end of the decade, as the healthcare industry grows significantly faster than global GDP.
What are the benefits of investing in healthcare companies? Here's what you need to know about buying healthcare equities, followed by four great healthcare stocks for your portfolio.
Healthcare stocks: Types
Healthcare is such a complex topic that there are many various types of healthcare companies. The most significant are as follows:
- Medical device stocks: Manufacturers of medical devices produce equipment used in the treatment of patients. These gadgets range from simple ones, such as disposable gloves and thermometers, to highly complex technologies like artificial heart valves and robotic surgical systems.
- Drug stocks: Pharmaceutical companies focus on developing medicines to cure illnesses. Biotechs use live organisms such as bacteria or enzymes to create medications, whereas pharmaceutical firms utilize chemicals. Drug stocks range from huge enterprises with billions of dollars in sales each year to tiny biotechs with no drugs available yet.
- Payer stocks: Payers, particularly health insurers and pharmacy benefits managers (PBMs), play a significant role in the US healthcare system. Insurers charge premiums to individuals and businesses to pay for healthcare expenditures, while PBMs administer prescription drug benefits for employers and health plans.
- Healthcare provider stocks:Healthcare providers are at the forefront, providing healthcare services to patients. Hospitals, physician practices, home health businesses, and long-term care (LTC) facilities are all examples of this.
- Alternative healthcare stocks: While an exciting market with a lot of upside potential, there’s also plenty of risk. People are creatures of habit, so moving from one treatment paradigm takes convincing. Moreover, because of the volatile nature of these stocks, it's wise to put money one can afford to lose. On the other hand, the upside could be big.
Here's one great stock from each major healthcare category.
Top healthcare stocks
Teladoc Health (NYSE:TDOC), based in Ann Arbor, Michigan, is one of the most appealing healthcare company stocks. The firm provides telehealth services that allow patients to get care from a doctor via the internet and phone.
In 2020, Teladoc bought Livongo Health, a digital health platform that helps people manage chronic diseases such as diabetes. The epidemic has resulted in an increase in the use of virtual care services.
The spread of the pandemic has slowed somewhat, as the return of life to normal in some regions is aided by growing vaccine availability. The firm's post-pandemic prospects, nevertheless, should be excellent. Individuals, businesses, governments, and health insurance companies are all attempting to reduce healthcare expenditures.
Humble & Fume
In the alternative healthcare space, Humble & Fume (CNSX:HMBL, OTC:HUMBF) is a stock to watch. If the SAFE Banking Act is enacted, the cannabis industry would be a step closer to legalization. If that happens, it will be good news for Humble & Fume Inc., which has established agreements with major retailers to significantly increase distribution in the United States when legal.
However, Humble & Fume is building other channels in the meantime. The company provides accessories as another silo on the road to legalization.
Last November, Humble & Fume raised US$8 million in a private placement with Johnson Brothers, a top 5 wine, spirits, and beer wholesaler in the United States having the option to acquire Humble once cannabis is fully legalised. Its current debt-free, cashed up position will help the company reach a new level of success.
Vertex Pharmaceuticals (NASDAQ:VRTX) is one of the best biotechnology stocks on the market. The firm's main goal is to develop medicines that cure CF's underlying cause (CF), a rare hereditary illness that damages the lungs and other organs.
Trikafta, a new CF drug from the company that may improve the number of patients its drugs can help by more than 50%, is likely to contribute to this expansion. The firm is also working on medicines for other uncommon genetic disorders as well as more common ones, including type 1 diabetes.
Intuitive Surgical (NASDAQ:ISRG) is a wonderful case study for a medical device stock. It's also an example of a surgical company. Since its debut in 1999, the company's da Vinci robotic surgical system has been used in over 8.5 million operations. The COVID-19 pandemic affected the firm's revenue since elective surgeries were postponed.
However, vaccines have aided to return Intuitive's business to previous strong expansion. The firm appears to have tremendous growth potential over the long term, with an aging population requiring the kinds of surgical operations for which da Vinci is frequently used.
Healthcare stocks: What to look for
What are the most important things to consider if you want to invest in healthcare stocks? There are four factors to consider:
1. Growth prospects
The most significant thing to look for in any healthcare stock is the company's development potential. Determine how quickly revenue has increased in the last several years. The future is rarely a copy of the past, but if a firm hasn't been able to deliver strong revenue growth thus far, it won't in the future either.
2. Financial strength
The SEC filings contain financial statements that can help investors judge a company's financial stability. A company should ideally be profitable already. If it isn't, find out how it plans to get there and how long it expects to stay there.
The balance sheet (a financial statement that lists all the company's assets, liabilities, and shareholder equity) of a firm may be viewed in its annual and quarterly regulatory filings to obtain a company's cash position. Consider cash position as though it were the sum of money in your checking, savings, and retirement accounts: The more, the merrier.
The free cash flow (FCF) generated by a business is another important indicator of financial health. FCF is the amount of money remaining after operating and capital expenditures are subtracted from a company's income statement. The higher a firm's FCF, the stronger its financial position.
Before buying a new vehicle, you'd want to know how much it is worth. It's also vital to establish the value of a healthcare stock before purchasing it so that you can be sure you're getting a good deal.
There are several valuation metrics to consider. The most common is the price-to-earnings ratio (P/E), which compares a company's share price to its earnings per share — or what you earn for each dollar you invest.Comparing P/E ratios with those of comparable companies might help you determine if the stock is cheap or expensive in comparison.
Healthcare companies pay dividends, which is the company's portion of profits paid out to investors. Dividends can enhance the total return you get from owning a stock.
The dividend yield indicates how big a stock's yearly dividends are as a proportion of the current share price. Consider the payout ratio, which compares dividends to earnings and shows whether the company is using too much cash to pay them. The lower the payout ratio, the more likely it is that the firm will be able to continue paying dividends in the future.
Healthcare stocks: Investing risks
Any sort of stock investment comes with its own set of dangers, including the prospect that rivals may improve upon existing goods and services. Healthcare companies face a variety of risks unique to the sector, as do other sectors.
Healthcare is a regulated industry. Drug and medical device companies may fail to gain the required regulatory permissions to sell new products, and regulatory changes might greatly affect a healthcare company's growth prospects. The Food and Drug Administration (FDA) in the United States regulates medicines and devices. It's a good idea to keep an eye on any FDA regulations that may impact
Healthcare companies are also vulnerable to litigation. Biopharmaceutical companies, medical device manufacturers, and healthcare providers may be sued if patients believe their goods or services have caused them harm.
Manufacturers of pharmaceuticals and medical devices must also persuade payers, including health insurers, PBM networks, and government agencies, to purchase their goods. If businesses are unable to receive reimbursement authorizations, their growth prospects may be harmed.
Medicare reimbursement rates are also important to a significant number of healthcare companies. The Biden administration has called for changes to Medicare in order for the program to negotiate pharmaceutical prices. If these reforms are implemented, drugmakers' revenues and profits may decrease as Medicare pays less for some medicines.
Healthcare stock strength should
Despite their risks, the long-term outlook for healthcare stocks appears to be very favorable in general. The worldwide aging population trend, as well as technological improvements, should create tremendous possibilities for healthcare equities - and provide healthy returns for patient investors.