Healthcare is an expansive sector, including industries like pharmaceuticals, medical devices, hospitals and health insurance. Each has its own dynamics that respond differently to trends and market conditions.
At the core of every healthcare stock evaluation is its future growth prospects. One way to assess this is to study its revenue growth over recent years and compare this against competitors.
Trends
Many healthcare providers are increasing investments in digital tools for patient engagement, staff productivity and back office operations. This trend has been spurred by the COVID-19 pandemic as well as ongoing challenges like staff shortages, supply chain issues and cost pressures from payers.
Many hospitals and physician groups are increasingly turning to telehealth systems as a means of protecting patients from exposure to contagious individuals in their communities, while also helping avoid higher hospital visits costs.
Vendors are increasingly looking at back-office software solutions that streamline patient intake processes and automate workflows more efficiently, such as patient portals. Hospitals continue to invest in these areas as post-Covid-19 patients expect healthcare to function like any other consumer good. Furthermore, big tech players like Microsoft and Amazon are expanding their healthcare capabilities via targeted acquisitions or mergers & acquisition activity; for instance they’re investing in telehealth and CRM solutions as part of this expansion strategy.
Investment Opportunities
Healthcare industries include companies that manufacture drugs, devices, and other healthcare-related products. Pharmaceutical and biotech firms produce medicines to treat chronic illness; Johnson & Johnson, Pfizer, and Merck are major players that generate huge revenues for investors.
Many investment opportunities in healthcare lie in reducing overinvestment in low-value services while investing more heavily in those that provide higher value, which requires physicians, insurers and patients to have better information regarding the relative worth of different services, while making long-term investments into treatments such as Hepatitis C virus (HCV).
Other high-growth investment opportunities in healthcare include vaccines, medical diagnostics and digital health platforms – technologies which could reduce costs while simultaneously increasing quality care – creating opportunities for entrepreneurs as well as investors alike. Healthcare offers low correlation with global macroeconomic conditions than many other sectors making it an appealing place for investors seeking stability during times of economic instability.
Risks
Investing in healthcare can be challenging. The sector consists of companies in various industries such as hospitals, drug makers, medical device makers and insurers; making valuation assessments challenging. Investors should also keep in mind that some health care stocks might not be liquid enough to trade easily.
Strengthening healthcare systems may cost a high price tag; for example, investing in frontline health workers and equipping them with adequate equipment may be costly – yet these investments are essential to speeding up response to crises that threaten economic growth, as well as to preventing health shocks that hinder economic recovery.
Although many healthcare stocks have relatively low trailing P/E ratios, evaluating earnings projections and future prospects are essential. Forward P/E ratios may prove useful here; as well as looking for companies with stable cash flows – which will reduce volatility.
Taxes
Health-related taxes have emerged as one of the fastest-growing federal revenue sources since Obamacare introduced 21 new healthcare-related tax provisions including individual mandates, premium surtaxes and medical device tax.
Studies are challenging whether nonprofit hospitals provide enough benefit to their communities to justify being exempted from federal income tax. Estimates suggest that their tax exemption value exceeds community benefits like donations, property taxes on hospital buildings and land and bond interest rate payments made to bondholders.
The HHS budget addresses the long-term needs of American citizens by lowering drug costs, improving child and maternal health, ensuring senior wellness, increasing access to high-quality, affordable healthcare, advancing research into medicine, public health, and social services, and investing in pandemic preparedness and biodefense by strengthening CDC’s capacity to rapidly respond to biological threats with long-term capabilities investments.
