How to Invest in Healthcare?

Feb 19, 2021

The healthcare industry makes up a large portion of the global economy. If nothing else, COVID-19 has definitely taught us that much. Overall, the healthcare industry can be divided into many sub-categories, but the most popular ones tend to be pharmaceuticals, hospitals and clinics, biotech, insurance companies, and medical devices.
Here are a few examples.

Pharmaceuticals

Generally speaking, conglomerate pharmaceutical companies carry less risk for investors when compared to their smaller counterparts. Big pharma companies invest a large chunk of their funds into research and development to bring innovative treatments to the market. If the new drug is successful on the market, it bodes very well for its stock price.

We saw a very recent and public example of this in the past year with pharmaceutical companies that brought the COVID-9 vaccines to the market. The more effective the vaccine proved to be; the more people were interested in investing in the companies. Naturally, all the investors wanted to catch the momentum, so the stock price of companies like Moderna shot through the roof.
In the US, Novavax skyrocketed over 3,000% this year, while Moderna gained 700%. The German biotech company Bio-N-Tech which collaborated with Pfizer, was up 250%. Even lesser-known companies like Vaxart, who have been working on an oral vaccine instead of a shot, rallied over 2,000%.


Hospital & Clinics

There are plenty of other investment opportunities in the healthcare market besides pharmaceutical companies. If science isn’t really your strong suit, perhaps understanding new drugs’ prospects will be a bit of a challenge.

But do not fret, as there are many other ways that you can invest in the healthcare industry. One example is stocks of hospitals and clinics. Although many countries only have public healthcare systems, private healthcare industries do exist.

Medical Insurance

Another great option in the healthcare industry is the stock of health insurance companies. Currently, the world’s biggest health insurer is United Health Group Inc (UNH), whose stock is trading at $328.41 per share at the time of writing.

Many investors tend to buy insurance stock through ETFs (exchange-traded funds) as it allows them to scoop up the shares of all the major players in the game. Even though we can’t think of an ETF that only holds health insurance companies, the iShares US Healthcare Providers ETF comes relatively close. It mimics the performance of the Dow Jones US Select Healthcare Providers Index.



Medical Devices

We don’t think about it much, but companies that produce components of products tend to be quite successful as well. For example, the company Retractable Technologies (RVP) produces syringes, which, as we know, are necessary for vaccines. As a result, the company’s stock climbed by 602% in 2020.

Another excellent example is Johnson & Johnson (JNJ), one of the world’s biggest healthcare companies. The company is an international conglomerate made up of 250 companies that manufactures pharmaceutical and medical devices.


Final Thoughts

The COVID-19 pandemic has left millions of people jobless and bankrupt, but it has simultaneously been a gold mine for others. Healthcare is one of the industries that thrived as a result of the pandemic. Nonetheless, the healthcare industry is experiencing some volatility at the time being. The demand for COVID-19-related research and development increased, but the need for other services has decreased substantially. Overall, the healthcare industry didn’t do great the past year, but that rings true for many sectors for 2020. For example, the Health Care Select Sector SPDR ETF (XLV) outperformed the S&P 500 by 4.49%.