Healthcare stock prices and the market have materially lagged, especially in the US, due to the impact of potential regulatory changes. However, the policy changes should not be considered revolutionary; they should be regarded as evolutionary. For all these years, whenever the investors have been thinking about growth-oriented companies, some top brands like Amazon, Facebook, Apple, etc., have been on their priority list. However, according to the statistics, in the last two years ending June 30, 2020, these firms accounted for 56% of the healthcare stock prices returned in the S&P 500. Not many people think about healthcare as a sector with similar growth potential. However, this trend is changing rapidly. Considering the current pandemic situation and high demand in the healthcare sector, people are now turning towards healthcare stocks for investment.
The Healthcare sector comprises many industries, including pharmaceuticals, hospitals, devices, health insurers, and more. Each of these industries has different dynamics, and thus, investments in this sector are affected by many variables. However, it is almost everywhere; the overall percentage increase in the cost of the healthcare sector on the GDP of the US economy is pretty visible. Healthcare offers an opportunity to invest in industries that constantly work towards innovating and improving quality of life. Although healthcare stock prices do not dominate the stock market like the tech giants, the industry is now considered a fast-paced one. Johnson and Johnson and Unitedhealth Group Inc are the two largest healthcare companies in the S&P 500.
Together with keeping an eye on the current healthcare stock prices, one must consider the prevalent trends of the sector when planning to invest in the sector. It is crucial to ponder the changes and continuation of the trends as they can impact many industries in the healthcare sector. Have a look at some positive and negative trends in healthcare stock prices.
1. The baby boomers and aging population: As per the recent census study conducted in the U.S., the people above the age of 65 continue to grow at a compounded rate. It is found out that - very soon, the aging population would outnumber the kids. This indicates that people would now seek more medical aid than ever.
2. The global spread of the disease: The spread of coronavirus has raised health concerns in many economies. It also disclosed the loopholes and unpreparedness of the healthcare system. It has forced the governments to start focusing upon the healthcare sector as a significant player in the economy.
3. Technological advancements: With the advancement in science and technology, the human race has been able to find solutions and medications for several diseases. Also, new and modern machines to foster the healthcare system are being developed by many companies. All of this shows the bright future of the healthcare system.
4. Long life with chronic diseases: As clinical research has progressed, the medical fraternity has developed several medications and therapies that can help a person survive longer with chronic diseases.
5. Diabetes, hypertension, obesity epidemic: Diseases like diabetes, hypertension, obesity have become quite common. People are spending vast sums of money to eliminate or minimize the effects of such diseases.
6. Personalized medical facilities: The personalized medical facilities like home ICU setup and industrial equipment like oxygen cylinders, concentrators, etc., for the home created great scope for growth in the healthcare sector.
- Cost control: The U.S. government’s policy to control the cost of many medicines and medical equipment might hamper the growth of healthcare stock prices to a certain extent.
- The uninsured: The uninsured population might become a burden on the country’s healthcare system and, in turn, affect the growth of the healthcare sector.
- Single-payer system: The single-payer system can also hurt the growth of the sector.
- Consumerism: Health policies by the government favoring the consumers will hinder the growth of healthcare stock prices.
Though both the pharmaceutical and biotech companies manufacture drugs, however, they differ in how they create the drugs. While pharmaceuticals work on smaller compounds that can easily pass through the barrier membrane in the body, biotech works on creating drugs from more significant protein compounds. Both these companies spend a considerable amount in R&D in their attempts to discover new compounds. Since the hit ratio is relatively low, one must consider the following things when planning to invest in drug healthcare stock prices.
- The number of compounds currently available
- The type of disease or medical conditions that the drug treats
- Number of people affected
- The process of discovery and marketing
Even though some studies suggest that the people of America are strongly recommending changes to the US healthcare system over the long term, healthcare stocks have done decently well. Considering the current pandemic situation, we can believe that the healthcare stock prices would keep on growing. As mentioned above, the positive trends in the healthcare sectors are considered to be the primary drivers of entirely secular healthcare costs. Thus, considering all of these changes, evolution, and innovation in the healthcare system, one should not hesitate to invest.
Despite the underperformance of the healthcare sector in the S&P 500, it is believed that the sector will grow successfully in the future and will reward its investors with higher returns. Let us dive in and find out the possible reasons for these speculations about the healthcare stock prices and performance.
The Covid-19 pandemic was more like a wake call for the governments of many economies. The pandemic has highlighted the potential of a virus to shut down economies, contribute to social instability, and hinder national defense. In the coming days, we can expect that the government will focus on policies that will be friendly towards the healthcare companies ready to combat healthcare issues in the country.
In the five years ending March 31, 2020, profit growth in the S&P 1500 healthcare sector had risen at an annual compounded rate of 8.1%. This pace of the earnings growth was around 3.5% faster than the entire S&P 1500. The healthcare sectors seem to be the third fastest-growing sector behind information technology and financials. As per a Statista study, it is projected that the healthcare market will reach 660 billion dollars by the end of 2025. Thus, we can easily speculate that the growth rate in the healthcare sector and healthcare stock prices in the future might boom.
The S&P 500 healthcare sector showcased earnings growth when the overall S&P 500 have contracted. The 12-month trailing EPS for S&P 500 indicated a decline by an average of 27.1% during the three pre-pandemic earnings recessions; however, in contrast to this, the healthcare stock prices and index earnings rose by an average of 14.2% in the same period. Even under the current earning recession that is ongoing, the healthcare stats have shown similar trends.
Since 2000, the US population of people over 65 has grown by 62%, which is around 2.5% annualized compounded rate. The US Census Bureau indicates the population over 65 rising to another 30% in the coming ten years. The older population tends to spend more on healthcare facilities, medicines, hospitals, etc. With these statistics in mind, you can believe that the healthcare stock prices will shoot up soon.
Often known as MedTech, the fusion of healthcare with technology has improved the delivery and usage of healthcare products and services. Healthcare technologies like AI, robotics, digitization, and 3D printing provide a new scope of investment for prospective investors.
Wondering what an inflation hedge is? An inflation hedge, in simple terms, is a protective investment that immunes you to the losses that occur because of inflation in an economy. Convention investors believe that gold is the best inflation hedge; however, the trend over the year has shifted. Now, the healthcare sector is in the race to be relatively immune from inflammatory pressures. The Consumer Price Index (CPI) for the healthcare sector has shown an increasing trend in healthcare stock prices for the past many years. According to statistics, the CPI for the healthcare industry has climbed by a multiple of 40 over seven decades.
Considering the rising medical concerns globally and the spread of the pandemic, there’s nothing wrong with speculating that the healthcare sector’s future growth is quite bright. One should consider this to be the right time to start investing in the healthcare sectors as the healthcare stock prices might do well in the stock market in the coming days.