Sell These Three Healthcare Stocks Before The New Year

The stock market has had an excellent year for 2019, and one sector that’s been unusually hot recently has been healthcare. Over the last two months, the healthcare stocks in the S&P 500, as a whole, have nearly doubled the return of the rest of the index.

That’s impressive, and while many healthcare stocks are deserving of this rally, not all of them are. This is especially true as we head into an election year. The election is still eleven months away, but the candidates have very different ideas for how our healthcare system should work. Naturally, that has an important impact on which stocks will do well, and which stocks could be left behind.

Investing in healthcare is a tricky business, and a lot of new investors can find themselves making costly mistakes. First, I need to explain a few important characteristics of investing in healthcare. There are few better businesses to have than a thriving healthcare company. For one, you can get enormous indirect support from the government. Healthcare firms almost have a legal license to jack up prices each year. Just ask anyone who’s been to the pharmacy lately.

Another key aspect of healthcare is the stability of the business. Spending on healthcare isn’t greatly impacted by the heath of the economy. Not in the way, say, the housing sector is. The stock market loves stability, and it will reward companies that can deliver predictable profits each year.

One dangerous area in healthcare is biotech investing. While there are some worthy biotech firms out there, many are not. In fact, I don’t think most listed biotech stocks should be publicly traded. The companies raise tons of money from gullible investors before they even have products on the market. From what I can see, the only thing they make is loads of press releases promising investors they’re on the cusp of some great medical breakthrough. Yeah, right.

Many of these biotechs are little more than lottery tickets. Sure, you might get the one that pays off. But the odds are, you won’t.

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Disclosure: None.

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