Healthcare market size and growth potential
We all need healthcare at some point in our lives; approximately $8 trillion is spent on healthcare globally every year. According to research between the World Bank Group and the Institute for Health Metrics and Evaluation (IHME) at the University of Washington, healthcare spending will increase to $18.3 trillion by 2040. That’s a lot of potential expansion for the sectors and stocks this article discusses.
The COVID-19 impact on healthcare stocks
2020 was a momentous year for the medical and pharmaceutical sector as many stocks printed all-time highs. The Biotech Index and certain healthcare-related ETFs (Exchange Traded Funds) also reached all-time highs.
The outbreak of COVID-19 exposed the medical and pharmaceutical industries and sectors to intense investor interest and speculation over the past twelve months. Many firms such as Pfizer, Moderna and AstraZeneca became global household names as their share prices reached record highs due to Covid-19 vaccine breakthroughs.
These vaccine manufacturers have blazed a trail since March 2020, pushing their COVID-19 vaccines through the three-stage trials in rapid time to get emergency (or pending) approval in the United States or full approval in Europe, the UK, and other continents.
The sums of money traded on biotech, medical and pharma stocks, and the subsequent share price volatility due to vaccine development have ensured that investor interest continued during the first quarter of 2021.
Moving forward, the Covid-19 vaccine manufacturers must be sensitive to issues such as affordability for poorer nations, matching supply to demand, getting the raw materials necessary for manufacture, and fears that the vaccines might not prove as effective as promised.
All these factors could dampen the sector’s appeal and the share price of specific healthcare firms in 2021. According to recent data, overall healthcare spending in the sixty most developed economies fell by over 1% during 2020 as the pandemic’s crisis management took precedence.
Looking beyond COVID-19 healthcare stocks
For now, many investors aren’t looking past the pandemic for medical, biotech and pharmaceutical growth stocks. That’s an oversight because some exciting developments are coming on stream, not necessarily involving Covid-19 vaccines.
Several firms have taken advantage of biotech stocks’ current vogue status to raise vast sums for new research and development, and the race to find cures or therapeutics for many diseases still goes on.
One of Britain’s most promising biotech companies Oxford Nanopore, is planning to float on the London Stock Exchange in 2021 with a potential valuation of over £2 billion.
So, although it’s impossible to ignore stocks involved in the fight against Covid-19, it’s also worth considering some of the most promising stocks of firms that don’t necessarily have Covid-19 vaccine development as their primary selling point.
How to measure healthcare stocks during 2021
We can apply several metrics to medical, pharma and biotech stocks to judge their current performance and future potential.
- P/E ratio. Profits can get returned to shareholders in the form of dividends. Low P/E ratios indicate investors pay less for each dollar of profit that is generated
- EPS. Rising earnings per share (EPS) growth for the most recent quarter shows a company’s business is growing and generating more profit that it doesn’t need to reinvest or return to shareholders
- Momentum. A stock’s momentum illustrates the speed of price change in a given period. The overall healthcare sector is volatile and niche, which means firms will suddenly announce progress and breakthroughs, and you must react quickly. You can subscribe to our newsletters to read our up-to-date analysis, and set alerts for market movements in these sectors
Types of healthcare stocks
Healthcare stocks get subdivided into four sectors:
- Medical devices - these firms are involved in the manufacture and distribution of devices such as incubators, machines, artificial joints, and sensors
- Biotechnology - Biotech firms are concerned with the research and development of medicines and technologies, often derived from living organisms. They are engaged in developing vaccines, therapeutics and providing treatment for chronic and terminal ailments
- Healthcare services – Firms in this sector will include hospitals, clinics, and health insurance companies. For example, the United States spends a combined $4 trillion on healthcare annually, roughly $11,000 per person; less than 25% gets spent on private hospital care
- Pharmaceutical companies – These companies eventually bring to market over-the-counter and prescription drugs after spending significant sums on research and development
Top medical and pharmaceutical stocks to watch in 2021
Picking stocks to watch in such volatile sectors can be a tricky business. These suggestions are based on which stocks are likely to continue to hit the headlines during 2021.
We’ve taken three stocks from each of the specific sectors mentioned above to compile a watchlist, some are giants, others are relative newcomers with significant potential upside.
Remember, when you trade with City Index, you can speculate on both rising and falling market prices. Follow these steps to start trading medical stocks:
- Open a City Index account, or log in if you’re already a customer
- Search for the company you want to trade in our award-winning platform
- Choose your position and size, and your stop and limit levels
- Place the trade
Medical device stocks to watch
Bio-Rad Laboratories Inc. (BIO)
Bio-Rad makes life science research products and analytical instrumentation that separates and analyses chemical and biological materials. The company’s net sales increased by 26.5% year-on-year in 2020, while net income increased by 51.6% over the same period.
Quidel Corp. (QDEL)
Quidel manufactures diagnostic healthcare products and solutions to detect and diagnose acute diseases and other medical conditions. Revenue grew more than five-fold in Q4 2020, as net income rose by more than 15 times. 84% of revenue came from COVID-19 diagnostic products.
Insulet Corp. (PODD)
Insulet develops and manufactures insulin infusion systems for diabetes. Insulet saw revenue climb by 17.5% YOY in Q4 2020 as the company reported a net loss of $17.1 million.
Biotech stocks to watch
Moderna Inc. (MRNA)
Moderna is a biotechnology company focusing on developing messenger RNA therapeutics and vaccines. Moderna announced 100 million extra doses of its COVID-19 vaccine sold to the US government in February 2021. Moderna also announced a deal for an additional 150 million doses to the European Commission.
XBiotech Inc. (XBIT)
XBiotech is a biopharmaceutical company specialising in antibody therapies for cancer treatment, inflammatory diseases, and infectious diseases.
It’s now working on a broader range of antibody therapies to treat viruses like COVID-19 and influenza. They are currently testing a treatment using antibodies from recovered COVID-19 patients to help treat current COVID-19 patients.
Novavax Inc. (NVAX)
Novavax is a clinical-stage biotechnology company creating vaccines for a range of infectious diseases. Novavax’s stock has made a remarkable recovery due to its COVID-19 research and development.
Close to failure before the global shutdown, its vaccine candidate appears to be a credible addition to the existing vaccines. Analysis suggests its CV-19 vaccine could help mitigate the coronavirus’s asymptomatic spread while providing longer-lasting protection.
Teladoc Health Inc. (TDOC)
Teladoc Health provides healthcare services such as diagnoses and treatment recommendations. The firm also prescribes medication for routine medical issues via phone and video consultations.
Innoviva Inc. (INVA)
Innoviva is a healthcare-focused asset management company which also holds a portfolio of pharmaceutical royalties. The company’s revenue increased by 20% YOY from 2019 to 2020, while its operating income increased by 30%.
Abbott Laboratories (ABT)
Abbott Laboratories (ABT) is a United States healthcare company focused on research-based drugs, medical devices, and pharmaceuticals.
It is famous for developing the first HIV blood screening test in 1985. The company has paid shareholder dividends every year since 1924, increasing these pay-outs over forty-eight consecutive years.
ABT stock gained over 37% during 2020.
Ocugen Inc. (OCGN)
Ocugen focuses on therapies for blindness and retinal diseases. It is developing a new COVID-19 vaccine called COVAXIN with Indian biotech firm Bharat Biotech. The company’s Indian partner has limited emergency use authorisation from the Indian government to administer its vaccine without a label saying, “clinical trial mode,” improving Ocugen’s plans to develop and distribute their COVID-19 vaccine globally.
Merck & Co Inc (MRK)
Merk is a US-based pharmaceutical company, and it’s a subsidiary of the German company Merck.
Merck has been developing a coronavirus vaccine and acquired private biotech firm Themis in June 2020 to further this ambition. In mid-March, the firm disclosed a possible pill vaccine for COVID-19.
Merck’s development of a cancer drug called Keytruda could also be a ground-breaking drug.
In late 2020, Warren Buffett’s Berkshire Hathaway disclosed its $1.8 billion investment in MRK.
Pfizer Inc (PFE)
Pfizer Inc (PFE) is a biopharmaceutical company based in the United States that develops and delivers medicines, vaccinations, and other healthcare products.
Tozinameran, codenamed BNT162b2, commonly known as the Pfizer–BioNTech COVID-19 vaccine and sold under the brand name Comirnaty, is a COVID-19 vaccine developed by BioNTech in cooperation with Pfizer.
Pfizer states its joint vaccine is 95% successful.
Eli Lilly and Company (LLY)
Eli Lilly and Company (LLY) is a US-based pharmaceutical firm. At the last count, it had operations in more than 18 countries and sales in more than 125 countries.
Its revenue increased in 2020 mainly due to the coronavirus pandemic, increasing demand for its treatments.
The United States FDA gave Eli Lilly’s antibody treatment for Covid-19 emergency approval in November 2020. This therapeutic, alternative, and complementary treatment to the CV-19 vaccines could supply long-term confidence in the firm’s venture into this area.
Healthcare ETFs, an alternative investment opportunity
There are about 40 healthcare ETFs that trade in the US, excluding funds with less than $50 million with assets under management (AUM).
As of February 2021, the healthcare sector, as measured by the S&P (Standard & Poor) 500 Health Care Sector Index, underperformed the broader market with a total return of 14.5% over the past twelve months compared to the S&P 500’s total return of 19.8%. That said, there were some spectacular gains during 2020. For example:
ARK Genomic Revolution ETF (Exchange Traded Funds) (ARKG)
- Performance over 1-Year: 225.8%
- Expense Ratio: 0.75%
- Annual Dividend Yield: 0.73%
- 3-Month Average Daily Volume: 4,543,848
- Assets under management: $11.6 billion
- Issuer: ARK Investment Management
What you should know before trading healthcare stocks
- The healthcare industry has experienced massive changes due to COVID-19. Consequently, shares in this sector have been volatile, and not all the quoted firms were winners during the period of intense speculation
- COVID-19 has increased demand for research and development around treatments but drastically lowered the need for other services
- Healthcare stocks have underperformed the broader market during 2020 and Q1 2021
- Before taking a healthcare stock position, it’s essential to do your research, apply your fundamental and technical analysis skills to establish how its share price performed over an entire year. Some stocks outperformed the market, and others suffered due to the pandemic
In contrast to the skill set needed to trade securities such as forex pairs, when you deal or invest in stocks, you need to take a deep dive into the firm’s numbers like earnings, p/e ratio, announcements, etc.
Healthcare, pharma, and biotech stock summed up
- The overall healthcare sector contains firms supplying medical services
- The healthcare sector is one of the most significant parts of the global economy; for instance, in the United States, it accounts for nearly 20% of annual GDP (Gross Domestic Product)
- Healthcare stocks fall into four categories: healthcare services, medical devices, pharmaceutical and biotechnology
- Healthcare share prices change due to several factors, including regulation, trials, breakthroughs, demographics, research, and development
- COVID-19 fuelled some healthcare firms’ growth, while other firms' revenue and growth slumped as specific healthcare treatment became overlooked in favour of managing the pandemic crisis
- It is vital to monitor all the latest industry’s breaking news, breakthroughs, and trends because the healthcare share sector can still flourish even during bear markets