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Healthcare Investments

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Healthcare Investments


Any investor worth their salt is always looking for ways to diversify their stock portfolio and reduce their risk level. This usually involves casting a net for relatively low-risk stocks that can act as a ‘ballast’ for their investment portfolio. That way, you bring in revenue even when the markets aren’t doing great. Representing 13% of the U.S. equity market, healthcare stocks tend to meet these conditions, presenting an attractive opportunity for diversification.

The healthcare industry is extremely diverse, with sub-sectors pursuing entirely different but healthcare-related endeavors. As such, making smart healthcare investments can diversify your portfolio and grant you access to stable stocks that are relatively immune to market factors. This article will talk about the different types of healthcare stocks, their pros and cons, and how you can invest in healthcare stocks.


Types of Healthcare Stocks

The healthcare sector covers many industries, each with different degrees of volatility and performance. Before you invest your hard-earned money, make sure you thoroughly examine the industry and all the factors that affect its performance. The following are the six types of health care stocks you will run into;


Colloquially known as ‘Big Pharma,’ the pharmaceuticals industry develops and manufacturers over-the-counter and prescription drugs. Firms in this industry also conduct research and development (R&D) to create new drugs that are approved for use after successful clinical trials. Big Pharma has a constant revenue stream thanks to continued drug sales. Still, their revenues usually dip once their patents expire and other firms start making generic versions of their drugs. Generic drug manufacturers enjoy increased demand due to lower prices, but they usually have lower profit margins.



Although firms in this sector also conduct R&D to create new therapies and drugs, they are often focused on a limited number of ‘breakthrough’ treatments. This means that they don’t rely on a constant income stream like Big Pharma but look to game-changing therapies that take years to develop and get approval, making for relatively volatile stocks. If you make a healthcare investment in this sub-sector, it may take years to pay off.


Medical equipment

These firms manufacturer everything from latex gloves and bandages to wireless brain sensors and surgical robots. If you choose the right product category, you could see long-term growth in the sector as healthcare consumption increases in tandem.


Sales and distribution

Includes wholesalers, retailers, and pharmacies that sell healthcare products. These stocks are affected by general retail trends, consumer demand, and government regulations.


Managed healthcare

These insurance firms provide healthcare insurance coverage to consumers. There are five major insurance providers in the healthcare space. Due to the necessity of health insurance, their stocks usually offer steady returns. Consumer demand and government action like creating new laws can affect the volatility of insurance stocks.


Healthcare facilities

The companies that operate clinics, hospitals, nursing homes, physician offices, and psychiatric facilities fall in this category. They aren’t as profitable as the other sub-sectors, and real estate market trends can affect their profitability.

Pros of Healthcare Stocks

The most significant benefit of making healthcare investments is that it allows you to really diversify your portfolio. These stocks are usually classified as defensive stocks. This means, regardless of how the economy or stock market is fairing, they will provide constant returns. Naturally, the different sub-sectors will vary in performance, but generally, the healthcare industry is projected to experience significant growth in the next few years, with its share of the economy increasing to 19.7% by 2028.


The following trends show that the healthcare industry is poised for long term growth.

  • Advances in technology like remote monitoring and telehealth
  • An aging population
  • Breakthroughs in treating chronic conditions like diabetes and obesity
  • Personalized medicine

Cons of Healthcare Stocks

While healthcare stocks provide an excellent opportunity for diversification, they also face a couple of issues that are specific to the industry. For starters, the government highly regulates pharmaceuticals and insurance firms. As such, the performance of stocks in these sub-sectors will depend on the changes or new rules in Medicare, Medicaid, and other programs as well as FDA standards.

Healthcare investments can also be affected by public opinion due to how crucial healthcare is. With consumers currently fighting for lower healthcare costs and universal healthcare, healthcare corporate profits may be impacted.

Investing in Healthcare Stocks

Your first step is determining which sub-sector best fits your portfolio and risk appetite and has the highest chance of bringing a return on your investment. Invest 5-10% of your portfolio, Stenton University finance professor Stuart Michelson advises, as a higher investment allocation may create sector risk. A relatively simple and low-cost way of investing in healthcare is adding health care mutual funds and EFTs to your portfolio. If your target sub-sector is healthcare facilities, you can also invest in a real estate investment firm.

Regardless of the sub-sector you decide to invest in, healthcare investments can be a low-risk stock that consistently provides if you play your cards right. Are you considering investing in healthcare stocks? Contact Provident Healthcare Partners today for a consultation. We’ll help you figure out what works best for you.