Different types of healthcare stocks
When discussing healthcare stocks, we can divide them into several subgroups. The major ones are:
- Pharmaceutical companies
- Healthcare services providers
- Medical equipment providers
Investing in different types of healthcare stocks might be a little different experience. In general, it is thought that investing in pharmaceutical firms is less risky due to their stability, thus leading to a much better risk/reward ratio
. It is especially true if we compare big-pharma companies to younger and smaller healthcare stocks. If a company releases a new drug with huge potential, its stocks will perform better as well.
Healthcare providers also tend to be larger companies that, in most cases, are more stable. The biotechnology companies are considered to be high-yielding. Also, many biotech companies are new to the market, having huge growth potential.
To better understand how different healthcare company stocks work and what type of potential they have, we will discuss some of the well-performing companies below.
One of the best-performing industries over the years, and especially in 2020, was the pharmaceutical sector. Out of those companies, one that many invested in is Pfizer. Known for its collaboration with BioNTech to develop the Covid-19 vaccine, Pfizer was predicted to earn over $10 billion in just a few years of the vaccine roll-out.
Some experts also say that the usage of totally new technology could further help the company develop other drugs. As of now, the company is working on rebranding and is rethinking the whole strategy.
The company is shifting its focus on prescription drugs and vaccines, a segment with huge market opportunities. The company is also very likely to continue paying its growing dividend.
Insurance is a huge part of the healthcare industry. During the Covid-19 pandemic, one of the best performing insurance companies was UnitedHealth Group. In the third quarter of 2020, the company reported a revenue increase of nearly 8%.
The main reason for the success of the company was being diverse. Although the insurance sector had a very mixed impact from the Covid-19 pandemic, UnitedHealth Group managed to come out of the situation positively.
The company has grown drastically from 2010 to 2020. In 2010, the revenue of the company was $94 billion, which has more than doubled by 2020. For the fiscal year of 2018, UnitedHealth Group reported earnings of $11.98 billion, with an annual revenue being as much as $226.2 billion.
While discussing some of the best long term healthcare stocks, it is very important to focus on one of the fastest-growing sectors of healthcare, biotech. In 2020, Amgen was included in the Dow Jones Industrial Average, which shows the importance of the biotech industry.
Amgen is one of the pioneers of the sector. It was founded back in 1980, the revenues of the company increased by 12% in the third quarter of 2020. Biotech is considered to be one of the fastest-growing industries, because of which, Amgen is said to have very positive prospects.
When it comes to medical devices and robotics, one of the leaders in the market is Stryker. Even during the Covid-19 pandemic, which has largely weighed on the company, Stryker was able to have a little growth. As for the following years, it is predicted to have quite a successful run. The company largely focuses on orthopedic and spinal procedures, a demand on which is increasing every year.
Teladoc Health is one of the leading healthcare provider stocks in the market. It is known for providing its services and delivering healthcare remotely over the phone and online. The Covid-19 pandemic of 2020 further showed the importance of the services provided by Teladoc Health and similar companies. The company has very positive future growth prospects.
Choosing the best healthcare stocks
While deciding which healthcare stocks to buy and invest in, there are several factors that you should focus on. One of the most important things that you should focus on is the growth prospects of the company. Then, it is the financial strength of the company. Basically, doing a technical analysis
as well as a fundamental analysis is more than enough to solidify your decision during an investment.
Another important indicator can be the valuation to make sure you are paying a fair price for it. One of the most popular metrics that you can use to determine the valuation of the company is the price-to-earnings, also known as the P/E ratio. The P/E ratio resembles the earnings of the company over a certain period, typically, past 12 months.
Also, many healthcare stocks pay dividends. This can boost your overall returns and can be rewarding for traders. Healthcare dividend stocks are very popular among traders in the market.
Risks of investing in healthcare stocks
Investing in healthcare stocks does come with several risks. Because it is a very competitive market, there always is a chance for any of the competitors to develop a product that is more demanded in the market.
Also, it should be said that the regulatory changes could drastically alter the growth prospects of healthcare stocks due to the heavily regulated nature of this field. However, although there are some risks, the overall outlook for healthcare stocks tends to be good over the long term.
The biggest advantage of the market might be the fact that it has something for everyone, whether you are a long-term investor or you are looking for the best small-cap healthcare stocks, you can find it easily in this market.