Healthcare Sector In 2021: The Complete Investors Guide

As devices get more advanced, it becomes easier for medical professionals to diagnose and treat conditions. Stocks in this industry can offer growth to investors as the demand for healthcare continues to ramp up. The best companies in this industry create new and innovative products that receive patent protection and government approval.

Managed Healthcare

Companies in the managed healthcare industry provide medical payments. This includes health insurance companies and pharmacy benefits managers. Health insurance companies charge premiums to individuals or employers for insurance to cover medical costs. Pharmacy benefits managers administer prescription drug benefits for employers and health plans.

These companies play an integral role in the healthcare sector. Medical costs can range from a few dollars for over-the-counter medicine to thousands for extensive procedures and medical care. Most individuals cannot afford expensive medical costs out of pocket, so health insurance provides a way to cover those expenses. Since health coverage is essential, the companies typically offer steady returns.

Healthcare Facilities

If we have a medical problem, there needs to be a place where we can go to be treated. Even with telemedicine becoming common, most medical treatment still needs to be done in person. That’s where the healthcare facilities come into play. Companies in this industry include hospitals, labs, clinics, nursing homes, and more.

Hospitals play the most important role in the industry as that is where the bulk of the treatment is taking place. If you had an accident, you would go to the emergency room. If you need an X-ray, you go to the radiology department. While hospitals benefit from an aging population that require more treatment, they took a hit last year as the pandemic limited elective procedures that provide the most revenue. But as more people get vaccinated and start visiting hospitals again, their fortunes should rise again.

Why Invest in Healthcare Stocks?

The best answer is that everyone needs healthcare at some point. Even the healthiest individuals should get an annual physical. If you think about how much the healthcare sector is part of the overall market, you understand why a well-diversified portfolio should have exposure to healthcare stocks. In the thirty stocks in the Dow Jones Industrial Average, five are healthcare-related. Healthcare is the second largest sector in the S&P 500 and makes up over 10% of the Nasdaq Composite Index.

In addition to the diverse number of industries in the healthcare sector, the types of stocks are also diverse. There are growth and value stocks, aggressive stocks and income stocks, plus stocks of multiple market-capitalizations. This is a sector that is growing faster than the U.S. economy. In fact, the health care percentage of the economy is projected to be almost 20% by 2028.

Healthcare stocks are benefiting from an aging population, advances in treatment for chronic diseases, and technological advances. COVID has led to a surge in innovation for the sector that should only continue to grow.

5 Healthcare Stocks to Buy in 2021

Cigna Corp. (CI - Get Rating)

CI provides pharmacy benefit management and health insurance services. It is one of the largest managed care organizations and pharmacy benefit managers in the country. Its pharmacy benefit services were vastly expanded with its 2018 merger with Express Scripts. CI provides health insurance to employers through self-funding arrangements but also operates in government programs.

The company’s approach to grow and cut costs has proven fruitful as its revenues have been growing consistently over the last few years. CI reduced its debt level and streamlined operations by divesting its Group Life and Disability insurance business. The company is also reducing medical cost growth which should help CI attract more business from existing and potential clients. Its expanding international business also aids growth.

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