Healthcare Sector In 2021: The Complete Investors Guide

The healthcare sector is one of the largest in the U.S. economy, making up close to 20% of the GDP. Even before the pandemic, an aging Baby Boomer population was driving demand in the sector. The pandemic has only added to this demand through the increased need for medical equipment, such as respirators and pharmaceutical drugs for the treatment and vaccination of COVID-19.

The pandemic also unleashed what looks like a golden age for biotech companies. While tech companies benefited from the pandemic’s stay-at-home protocols, biotech firms are benefiting from the urgency to create treatments and vaccines. This has led to scientific advances that are not only applicable for the virus but for the treatment and prevention of other diseases, like diabetes and cancer.

Approximately $3.5 trillion is currently spent on healthcare in the U.S., and that figure is expected to soar in the years ahead. National health spending is projected to reach $6.2 trillion by 2028. When you add in an increase in chronic diseases and conditions, this makes healthcare an enticing sector to invest in. Plus, the sector is quite diversified with multiple industries to consider.

CI – The healthcare sector is the third largest in the US and as of October 2020, it was valued at $6.7 trillion. Over the past 10 years, the Healthcare Sector has outperformed the S&P 500 by 27% and continued gains are expected in the coming decade. To take advantage of this consider adding Cigna Corp. (CI), Johnson & Johnson (JNJ), HCA Healthcare Inc. (HCA), Amgen Inc. (AMGN), and Medtronic (MDT) to your portfolio.

Healthcare Industries

Biotech

The biotech industry comprises companies involved in the research and development of new drugs, devices, and treatment methods. Biotech companies use live organisms such as bacteria or enzymes to develop drugs. This use of living organisms is what separates biotech firms from pharmaceutical companies that use chemicals to develop drugs.

While many biotech firms only focus on a couple of breakthrough treatments, larger biotech firms typically have robust pipelines. Biotech stocks are sometimes considered part of the pharmaceutical industry since both make drugs, but the stocks behave differently. For instance, pharmaceutical stocks offer long-term steady returns, while biotech stocks are more growth-oriented with volatility and the potential for more significant returns.

Pharmaceuticals

Pharmaceutical companies engage in the research and development of drugs used for medication. Unlike biotech firms, pharmaceutical companies focus more on the manufacturing and marketing of an existing portfolio of drugs. This creates a more dependable revenue stream and a more diversified portfolio of drugs. The global pharmaceutical industry typically tops $1.2 trillion in sales annually.

Many pharmaceutical companies focus on original drugs, in which they hold the patent. In contrast, others specialize in generics, which are identical to the original brand name drugs that no longer have patent protection. There is more competition in generic drugs, which results in lower prices and smaller profit margins. However, there is greater demand due to insurers and government incentives to use lower-cost generics.

Many pharmaceutical companies also manufacture over-the-counter (OTC) drugs such as mild pain relievers and cough medicine. 

Medical Equipment and Devices

In addition to drug companies, medical equipment companies also play an essential role in the healthcare sector. These companies make devices used in the care of patients. They range from thermometers and scalpels to robotic surgical systems and MRI machines. This industry benefits from technology innovations in the medical field.

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