Because people will always need to get health insurance, see a doctor when they’re sick, get a prescription, give birth, and to be taken care of when they're old, the health sector seems like one of the best sectors to invest in to profit from its growth over time. Still, this industry also bears some risks that you need to be aware of before deciding to invest in it.
Let’s have a look at the industry outlook, the advantages and risks of investing in it, as well as the best ways to do so.
What is the health market?
The health market includes companies from various sub-sectors related to healthcare products, services, and technologies, such as pharmaceuticals, medical devices, biotechnology, health insurance, hospitals, nursing homes, and telemedicine, among others.
State of the health market
The global health and healthcare sectors have been suffering over the last few years from various factors, such as the COVID-19 pandemic, geopolitical tensions, high inflation, tightening monetary policies, as well as climate and energy crises, with people sometimes being unable to go to the doctor or receive the right treatment.
The healthcare industry all across the world has no other choice than to evolve and step up to face the new difficulties and challenges brought on by these events, especially as the global population is getting older.
The share of the population over 60 years old is likely to increase from 12% to 22% between 2015 and 2050, implying that healthcare services and goods will become more important as time goes on. According to the Centers for Medicare & Medicaid Services (CMS), annual health spending should be around 5.1% between 2021 and 2030, reaching $6.8 trillion by the end of this period.
Technology is being increasingly used in the health industry to enhance many facets of the sector, even if the pace at which technology is adopted within the industry is not quite as fast as it is in other sectors.
The use of technology in medicine, especially artificial intelligence and machine learning, has many applications, from monitoring of heart signals, developing new drugs, analyzing DNA, offering telemedicine, improving the accuracy and efficiency of diagnosis, and the automation of some surgeries.
That’s why health-tech is becoming increasingly popular among investors. But because the different technologies are applied to different aspects of the health industry, there are different sub-industries you can invest in to take advantage of health technology, such as med-tech and biotech, for instance.
Health market - What are the growth opportunities?
The health market is constantly evolving, especially since the COVID-19 pandemic has forced the adoption of new technologies, changing patient behaviors and expectations, as well as how doctors operate. The global population is aging, chronic diseases continue to rise, governments are more often than not adopting healthcare policies that support the industry, and technological advancements are increasingly adopted throughout the health sector, such as telemedicine and digital health.
As these trends will certainly support the industry over the next few years, you will need to spot the best companies that can profit from these drivers. For that, you will need to look for leaders with stable and solid financial health and solid track records, and companies that offer a relevant and large pipeline of products or services that will become commercial success.
Here are some of the growth opportunities of the health industry:
- Aging population
- Higher chronic diseases around the world, such as heart disease, diabetes, cancer, and respiratory diseases
- Increasing awareness and adoption of preventive health
- Higher than ever focus on well-being
- Digital health offering healthcare services remotely
- Biotech
- Medtech
- Resilience of the health sector to economic downturns and cycles (defensive sectors)
- Potential increase of government spending to improve their healthcare system
- Diversity of companies to invest in within the sector
What are the risks of investing in the health market?
While the health sector provides great investment opportunities, there are a range of risks you need to take into account. That’s why you should always consider them to be sure the health sector is the right sector to invest in, according to your strategy. Always do your research about market trends and growth perspectives, as well as about individual firms you’re planning to invest in. Even though the health sector is often seen as a defensive and non-cyclical sector, always consider the current economic cycle we’re in to better understand where future market growth might come from.
Here are the most common risks associated to the health industry:
- Volatility in some sub-sectors
- Clinical trial risk
- Patent expiration risk
- Intellectual property risk
- Generic drug risk
- Dependance on a few products or a few geographical zones to make the most sales
- Competition
- Regulation
- Healthcare policy risk
How to invest in the health market
If you want to invest in the healthcare market, you must first determine your trading style, financial goals, and risk tolerance. This will help you decide how you want to profit from the healthcare sector.
If your trading plan includes active trading with a relatively short time horizon and you have a high availability and risk tolerance, then you may want to consider leveraged derivatives such as CFDs, also known as "Contracts for Difference". These will allow you to start small and bet on the rise or fall of a healthcare stock without owning it.
If you want to become a shareholder in a company and support its growth over time, then you will need to invest in physical shares without leverage.
You also need to decide which sub-sector to invest in (pharmaceuticals, health insurance, medical science, bio-tech, well-being, etc.) and which type of healthcare company you want to invest in: blue chips vs penny stocks for example.
If you are not sure about which companies to invest in, you can also decide to use mutual funds and Exchange-Traded Funds (ETFs). You will then profit from a kind of basket of stocks dedicated to the health market without having to pick individual stocks.
Finally, you’ll have to decide if you want to use technical analysis or fundamental analysis to make your trading decisions. You can also choose between discretionary trading and automated trading if you have the right knowledge.
Some brokers, such as ActivTrades, offer a single platform for trading stocks in CFDs and investing in stocks on a dedicated, non leveraged investment account for longer-term positions.
Here are some examples of popular stocks from the health sector:
- Pfizer
- Moderna
- Amgen
- Biogen
- Johnson & Johnson
- Gilead Sciences
- Abbott Laboratories
- Stryker Corporation
- Medtronic
- Sanofi
- bioMerieux
- AstraZeneca
- GlaxoSmithKline
- Bayer
- Fresenius Medical Care
- Merck
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