Atanas Stoyanov
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Investing In Health Care


If you are interested in investing in health care, you should know it’s a complicated sector with lots of moving parts, lots of potential and not a small amount of risk.

There’s a little bit of everything for every taste – pharmaceuticals, devices, insurers, hospitals and more. Things that affect outcome include health trends by demographic and ongoing news (good and bad) about reimbursement of costs to health care insurers.

Related: UNDERSTANDING AND USING PRICE-EARNINGS RATIOS

Trends To Understand

Trends can be positive or negative. Knowing which is which is important.

Positive trends affecting health care (investing) include an aging baby boomer population that will need more and more health care services, people living longer with chronic disease (heart and diabetes), an obesity epidemic, advances in technology, the worldwide reach of certain diseases and a move toward personalized medicine.

There are negative trends and influences as well. Our current single-payer system (Medicare) could expand. Not likely but possible. We are spending an increasing share of GDP on health care – not a good sign. Millions of uninsured people are not getting (or paying for) health care. Cost controls and consumer activism affect profits and the threat of losing government support for the ACA affects the bottom line for health insurers.

Spread The Risk

Most investors in health care rely on ETFs and health care mutual funds which helps avoid the volatility of investing in individual stocks. Otherwise, it becomes a matter of either making perfect choices or creating your own fund – which can get expensive and complicated to manage.

Helpful tools exist, especially when evaluating various companies in health care. WooTrader’s Daily Rankings, for example, can break down stocks by industry to help you choose stocks from companies with growth potential or that are considered “buys” by Zacks or TipRanks.

Related: Widget Spotlight #11: The Company’s Financial Statements

Why Invest

According to Forbes, there are a couple of reasons to consider investing in the health care sector.

First, health care has strong long-term fundamentals. This includes superior earnings-per-share (EPS) growth. That’s an important factor in creating long-term equity returns. It’s also noteworthy that the health care sector has both a higher and a more stable return on equity than the broader stock market, taken as a whole.

In addition, while the health care sector typically trades at a premium to the broader market, health care stocks are currently inexpensive when compared to the rest of the market. This suggests that the health care sector should continue to perform well relative to the broader market – unless unseen factors force the relationship between health care stocks and the S&P 500 to break down.