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One of the biggest key points that you should consider when examining any investment opportunities is to ensure that it has a prospect of staying relevant in the long-run. It might sound hard at first, but there is one promising option that you might have overlooked.
Healthcare. Well, everybody might need healthcare at any given point in their lives. It is a market that is constantly aiming for improvement and fast growth over time. That is something of much worth to any investor, and it shows in the market.
To give you an idea of how the healthcare market is currently doing, over $7.8 trillion is being spent globally. Not only that, but there is a high expectancy for those numbers to notably increase in a matter of years.
So there is a massive opportunity for you to invest in. Here is some helpful information you should know for those interested before venturing into the world of healthcare stocks.
Different types of healthcare stocks
If you were to delve deeper into the healthcare stock market’s inner-workings, you would quickly notice that its efforts aren’t just focused on one single working area, but many. Knowing them can be of great use in your decision-making process.
Here are four of the most important types of healthcare stocks:
- Drug stocks: An area focused on the development of drugs for treating diseases. This type of stock tends to cover huge companies with earnings of billions of dollars each year and smaller companies that have yet to release their products to the market.
- Medical device stocks: An area focused on developing devices and machines used in patients’ care. This covers a wide range, from disposable gloves to robotic surgical systems.
- Payer stocks: Health insurance and pharmacy benefits managers.
- Healthcare provider stocks: Hospitals, physician practices, long-term care facilities, and more.
Evaluating your options
Let’s pretend you already have a few options at your disposal. How do you know which ones are worth investing in and which ones aren’t? Try to evaluate them with the following criteria.
- Growth prospects
Check your companies’ revenue in recent years. Have they shown growth during that time frame? Yes? Then maintain yourself close to those options.
Keep in mind that just because a company has done well in the past, it doesn’t necessarily mean that it will stay like that in the future.
Now, try and investigate just what those companies have set in-store to boost their growth and live up to their potential market. Try to compare it to that of their respective competitors. Which companies do you think to have the better strategy in mind?
The point of this exercise is to check how big are your companies’ growth prospects. If they’re favourable, that’s a point towards it being a worthwhile investment.
- Financial strength
Companies tend to make annual and quarterly reports regarding their financial performance, and they tend to be made public. You can easily find any company’s balance sheet if you were to look for it.
Going over the balance sheet and evaluating it is as easy as going over your checking, saving and retirement accounts. The bigger the amounts of money you see in there, the better.
You can also choose to review how much money the company has left over after having already paid its operating expenses. Again, the bigger the numbers, the better.
Ideally, it should show that the company is currently being profitable. Try and look for that kind of company.
You should also use some valuation metrics to determine your stocks’ actual value before choosing to buy.
For example, use the Price-to-earnings ratio (or P/E ratio) to measure your actual earnings per every dollar invested.
If you were to compare a P/E ratio with that of a company of the same industry, it could help you realize whether the stock you are buying is relatively cheap or relatively expensive.
However, a high value doesn’t necessarily mean that it will be a good investment, as it could also be an indicator of your company’s growth prospect is better than those of its competitors.
Considering that, you can also use the price-to-earnings-to-growth ratio (or PEG ratio), which incorporates projected earnings rates in the equation. Ideally, your PEG should be a low value.
Healthcare companies tend to pay dividends to their shareholders. However, your priorities should not be on how much they are spending on dividends and whether the company can keep them consistent for the long-run.
Use the dividend yield to figure out how much of a percentage your dividends represent for their current share prices. Also, use the payout ratio to measure how much of its money is being used to cover the dividends. If the value is low, the company can keep paying them for the foreseeable future.
Today’s best healthcare stocks
To give you an idea of some worthwhile healthcare stocks to invest in, we recommend looking into the following companies:
- Vertex Pharmaceuticals
- Intuitive Surgical
- United Health Group
- Teladoc Health
Potential investment risks
As promising as the healthcare industry might sound, it is also of great uncertainty. There is a considerable amount of risks to keep in mind at all times.
For starters, it is one of the most competitive industries out there. There’s always the significant chance of a competitor suddenly becoming more successful than whichever company you are a shareholder of.
It is also one industry that the government heavily regulates. One day your company might face a bump in their way if they were to fail a mandatory regulation process, hitting their operations hard.
And there are also litigation risks. If the people who used your products were convinced that it caused them any harm, they’re within their rights to sue you in response.
However, as long as you are mindful and wary of these risks, healthcare stocks are among the most profitable investments on a long-term basis. The constant pursuit for innovation and improvement provides an unprecedented opportunity for healthy returns to investors.