Healthcare Is Ready To Lead In 2021

  • Healthcare lagged the broader market last year, but that can change this year.
  • A cyclical upturn as the pandemic abates and pent-up demand can boost healthcare.
  • Best positioned are industry groups within healthcare that can achieve secular growth beyond the cyclical rise.
  • Biotechs, Medical Devices and Systems, and Medical Services could do exceptionally well and gain more than the healthcare benchmark.

Healthcare Pulse

Last year was all about healthcare as the pandemic brought the world to a halt, withering economies, destroying livelihoods, and sending millions to hospitals. The year presented challenges that were unprecedented in modern history. The pandemic is not over yet, and the daily death rate in the US may peak late in February if the fatality rate mirrors the path of the flu season. But healthcare has given the world hope for a 2021 turnaround as biotechs and pharmaceuticals are delivering on the promise of vaccines.

As much as healthcare was ingrained by the pandemic into the 2020 fabric, the stock market did not reward the sector. It was a struggle all year long for the S&P Healthcare Index to even stay positive. Entering November 2020, the healthcare index was down slightly for the year, and its annual gain of 11% was well below leading benchmark indexes like the S&P 500.

In determining total returns, equally important as security selection are the times when one is invested and the investing behavior based on the investment approach. This served us well as the various Prudent model portfolios outperformed their benchmarks.

Prudentbiotech.com~ Performance

Can Healthcare Lead in 2021?

Although the healthcare sector lagged the broader market, there were industry groups that did quite well. Biotech was one of the leading healthcare groups and should continue to do well in 2021, as outlined in the Biotech Bonanza 2021 Outlook.

It is likely that as the year progresses, gains will broaden out across the healthcare sector, and particularly for groups that have been adversely affected by the pandemic. These include the entire hospital-related ecosystem, medical devices, and medical systems, amongst others.

In many cases, there has been a demand shift or deferral. As the battle against the pandemic begins to tilt in our favor, likely by the early second quarter, we can witness significant pent-up demand beginning to flow into the healthcare system and surging in the second half.

Healthcare will be affected by new trends. The sector will continue to experience growing digitization which will create new opportunities while threatening some existing markets. The pandemic has opened up new ways of conducting business processes, which in many instances are being found to be more efficient. Whether it's the use of telemedicine or telehealth or virtual trials in clinical development, it's clear that many of these shifts spurred by the pandemic will remain permanent.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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