How to Invest in Healthcare Stocks 2024

Jitanchandra Solanki
21 Min read

The pandemic accelerated the adoption of digital health and virtual care around the globe - a trend that is likely to continue throughout this decade. Healthcare providers are now embracing technology at a pace not seen before. Healthcare delivery is no longer restricted to the four walls of hospitals. All of this is likely to impact healthcare stocks.

But what are the best healthcare stocks to buy right now? How do you begin to invest in medical stocks? In this '6 Top Healthcare Stocks' article, we answer these questions and more!

The Different Types of Top Healthcare Stocks

In this section, we cover the different types of medical stocks available to invest in. It's important that when building a portfolio of the best medical stocks that you diversify into different types of the best health stocks which are highlighted below. 

Pharmaceutical Healthcare Stocks

Pharmaceutical companies produce almost all over-the-counter (OTC) and prescription drugs. Large pharmaceutical firms are usually less risky to invest in, as compared with their younger or smaller counterparts. These companies spend a major portion of their resources on R&D (Research & Development), to bring innovative treatments to the market.

So, if a company releases a new drug with huge earning potential, its stock will perform well. You may find a small group of healthcare shares collectively called "Big Pharma," which consists of the large cap pharma companies. However, even when investing in 'Big Pharma', you should have knowledge concerning:

  • The scope of the drugs
  • The scale of the people affected by the disease the drug addresses
  • The availability of substitutes and drugs by competitors
  • Intellectual property rights related to the process of manufacturing and the drug's patent
  • Profit and revenue division pacts with other companies

The clinical trials are conducted before a drug is launched, and their outcomes, also affect share prices in the healthcare segment. Positive outcomes tend to drive prices up, while negative outcomes could even potentially lead to a crash. Investment in pharma companies, therefore, requires active analysis by investors.

Service-Based Healthcare Stocks

Hospitals and clinics are the foundation of any healthcare system. Therefore, when their stock is available for investing in, they do tend to offer good investment potential. Here, too, the larger companies, such as Acadia healthcare stock, would offer more stable potential and lesser risk. Of course, the risk is always a part of any investment, and using good risk management strategies is vital.

Healthcare service providers are subject to enormous regulatory risks. Hospitals often make quick and costly hardware, and software changes for better facilities, and to attract more patients. This might, however, make the hospitals prone to bad debt, and may also affect their dividends.

Medical insurance firms are also an important player in the healthcare services sector. They pay the bills, so, the better the underwriting, the lower the medical costs incurred by the insurance company will be.

This is why it's important to analyse the medical cost ratio, and medical loss ratio before investing in such healthcare sector stocks. The insurance industry is also highly volatile, due to changes that take place in regulatory frameworks. However, investing in these stocks tends to be less volatile than investing in hospital stocks.

If you want to invest in medicine and you choose this area, it is important that you need to keep an active eye on the regulatory framework to minimise losses associated with these stocks.

Medical Device Healthcare Stocks

With increasing life expectancy, medical devices are becoming more important than ever before. Medical device firms generally witness a slow growth rate. The products offered by them range from bandages to artificial joints, from digital blood pressure monitors to heart stents, and much more. Such devices will always be in demand, but an instant boom of any specific device is unlikely.

These firms, also spend a large share of their resources on R&D, as well as the stages after R&D. Here, there are older, more stable firms, as well as small startups with great growth potential. Healthcare software providers offer greater potential for growth than hardware manufacturers. Today, hospitals worldwide are adopting automated systems to offer better services to patients.

On the other hand, advances in technology are bringing AI and robotics into the healthcare system, changing the way medical care is provided. You need to study the technology, the substitute products, and the competitors of a firm before investing. Adoption rates and gross margins typically determine the success of these healthcare technology stocks.

Biotechnology Healthcare Stocks

Investment in biotechnology stocks is generally considered high yielding, although it does entail risks as well. You may also consider investing in stocks of companies that are involved in R&D for the treatment of chronic and terminal ailments, such as cancer, AIDS, diabetes, heart disease, neurological diseases, immunological diseases, viral infections, stem cell and tissue regeneration.

If these projects are successful, they will greatly impact the lives of people worldwide, which in turn would drive up the share price. You might even consider investing in companies with a strong network of collaborative support, indicating that it is financially and logistically stable.

Biotech stocks nearing the end of their R&D stage, or awaiting approval from the regulatory authorities are also likely to be better investment options. However, remember that if the clinical trial fails to produce the desired outcome or there are regulatory hurdles, the share price might decline.

Healthcare Penny Stocks: Cheap Healthcare Stocks

Below are some healthcare penny stocks to consider:

  1. Antares Pharma (OTC:ATRS): Antares is focused on developing and commercializing self-administered parenteral pharmaceutical technologies. 
  2. Revive Therapeutics (OTC:RVVTF): Revive has a focus on finding treatments for rare diseases and infections.

It's always important to remember that a trader's ability to earn a profit depends on their skill level. It is impossible to predict whether or not these stocks mentioned in this article will give you a return on your investment.

It's also important to remember that when investing in healthcare penny stocks, such stocks are often traded on over the counter exchanges, which are not as heavily regulated as traditional stock markets like the London Stock Exchange or the NASDAQ. Because of this, these markets can be riskier and traders should decide if they can afford to take on such a risk before buying shares in these markets.

Healthcare Dividend Stocks

The following companies operating the healthcare market have been paying dividends for over 10 years. Some traders consider these healthcare dividend stocks:

  1. AbbVie (NYSE:ABBV): This biopharmaceutical company came from Abbott Laboratories back in 2013, spinning off into their own company. They are well known for one of the world's top-selling drugs, Humira. Humira treats Chron's disease, arthritis and ulcerative colitis. Humira generated $19.8 billion in revenue in 2020.
  2. Johnson & Johnson (NYSE:JNJ): This is one of the older businesses on this list of healthcare stocks. Johnson & Johnson has been around for more than 130 years. In 2020, the company shifted its focus to the COVID-19 pandemic, and eventually produced one of the top 3 vaccines for the virus.
  3. UnitedHealth Group (NYSE:UNH): Although UnitedHealth Group is still young compared to the other companies on this list, it has been publicly traded for more than 35 years and has one of the largest employee bases of other companies in this sector: 330,000.

These are not the best healthcare dividend stocks. They are merely some of the popular healthcare dividend stocks.

AI Healthcare Stocks

What are AI healthcare stocks? To understand AI in healthcare, we need to first understand what AI is. While computers excel at performing calculations, not all of them can do what humans do with ease: language processing, manipulating and moving objects, reasoning and others. AI (Artificial intelligence) uses computers to complete tasks that usually demand human intelligence.

Therefore, an AI healthcare stock is a stock in a company that operates in the healthcare sector and offers a product or service that incorporates AI.

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6 Top Healthcare Stocks to Buy Now

What is the best healthcare stock to buy now? What are the top healthcare stocks for this year? It's difficult to say which healthcare stock will ultimately be the best one as every investor will have different risk tolerance. However, we can start to answer this question by looking at some of the top healthcare stocks to watch right now. Remember that share prices go up and down so exercise proper risk management tools to deal with winning and losing trades.

1. 1Life (NASDAQ:ONEM)

The company '1Life' does business under the name One Medical. It's a chain of primary healthcare clinics based in San Francisco. It is a membership-based service with both in-person care services and online resources. Online resources include a mobile app. One Medical's founder is Tom Lee, who started the company in 2007. It grew from one San Francisco clinic to over 72 locations all across the USA. On January 31, 2020, One Medical started trading shares in their company on the Nasdaq stock exchange.

2. Acadia Healthcare (NASDAQ:ACAD)

The company, Acadia Healthcare is a behavioural healthcare provider operating internationally. It has a network of more than 584 locations throughout the United Kingdom, United States and Puerto Rico. Acadia focuses on providing addiction and behavioural health services in various settings. Acadia was created in January 2005, and has headquarters in Franklin, Tennessee.

3. Vertex Pharmaceuticals (NASDAQ:VRTX)

Vertex Pharmaceuticals shines as a top biotech stock. The company focuses primarily on the development of drugs to treat the root cause of cystic fibrosis (CF), which is a rare disease that damages organs in the body, such as the lungs. Their latest drug Trikafta may increase the number of people their drugs can treat. Vertex is also in the process of developing drugs to treat other rare genetic diseases.

4. Intuitive Surgical (NASDAQ:ISRG)

This is a great example of a healthcare company with advanced technology. Intuitive Surgical's da Vinci surgical system is a robotic system that's been used in over 7 million procedures since 1999. While the pandemic hurt their business by reducing the number of elective surgeries, the vaccine rollout could create an environment for Intuitive to recover.

5. UnitedHealth Group (NYSE:UNH)

UnitedHealth is one of the largest health insurance companies in the world. Some traders are attracted to their stock due to their stability, dividends and size of the company. The companies makes revenues in the $257 billion range every year and serves more than 75 million people from its 350,000 employees. The company has been an industry leader for decades and is part of the Dow Jones 30 index.

6. Teladoc Health (NYSE:TDOC)

Teladoc is a popular healthcare stock. They are another example of a company offering their services via modern technology. They offer healthcare services, remotely, via the internet and phone. The company acquired Livongo Health in 2020, which gave them a platform for remotely assisting people with chronic conditions. The COVID-19 pandemic has boosted virtual care services. Even after the COVID-19 pandemic ends, individuals and companies in the healthcare market may still be looking to cut costs. Delivering healthcare services remotely is one way to do this.

Other major healthcare stocks to consider are:

  1. Alliedhealthcare stock
  2. AMNhealthcare stock 
  3. Molina healthcare stock 
  4. Omega healthcare stock 
  5. Ryman healthcare stock 
  6. Tenet healthcare stock 

These are some large healthcare-related companies offering shares.

How to Buy Top Health Care Stocks with Admirals

With Admirals, you can buy the top health care stocks and medical ETFs with a competitive commission of just 0.02 USD per share and with a low minimum commission of just $1.0 on US-listed instruments. 

  1. Open an account with Admirals to access the Dashboard.
  2. Click on Trade on one of your live or demo accounts to open the web platform.
  3. Search for your healthcare stock name at the bottom of the Market Watch window and drag the symbol onto the chart.  
  4. Use the one-click trading feature, or right-click and open a trading ticket to input your trade size, stop loss and take profit level.

Source: Admirals MetaTrader 5 Web. Past performance is not a reliable indicator of future results, or future performance. 

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Is Now a Good Time to Invest in Healthcare Stocks?

Is now a good time to invest in healthcare stocks? What is the future of healthcare stocks? As we have discussed above, the healthcare market is one of the largest and most complex sectors and includes a wide range of businesses.

The onset of the COVID-19 pandemic led some companies to focus on finding different ways to administer health care services. Many companies have been focusing on developing a vaccine for the coronavirus. Several of them already received regulatory approval for their vaccines and have been distributing them.

Others are still focusing on developing and getting approval for other drugs to help treat victims of the coronavirus. Still, other companies have developed and continue to develop testing methods for the coronavirus. Because several companies in the market have been developing and providing healthcare services in new ways, some traders consider it a good time to invest in the right healthcare stocks.

However, it is not possible to predict the future of healthcare stocks. It is important for every trader to perform thorough research as to which stock is best suited for them to invest in. 

Risks of Investing in Healthcare Stocks

If you wish to invest in healthcare stocks, there are a few points to keep in mind. The medical sector has a complex nature, and without understanding how a business operates or what they do, you will need to research before investing in them.

Many traders who buy healthcare stocks also pay attention to government legislation. Large policy changes can set off volatility in the healthcare market. Additionally, the FDA can make decisions that can boost or damage pharmaceutical companies. Traders who invest in healthcare stocks often pay attention to changes in government regulation and political shifts.

One popular and effective method of learning how to reduce risk and improve your trading strategy is by trading with a demo account before trading on live markets. With a demo account, traders can trade virtual money on virtual markets that mimic the live ones with real market data and analysis tools, without risking any of their real money. 

How to Find the Top Health Care Stocks

How can you find the best health care stocks to buy? There are four key things to look for:

1. Growth prospects

One of the most common factors traders consider when deciding which company to invest in is the company's growth prospects. You can do this by finding out how fast their revenue has grown over the past years. While this, alone can't determine if the company will grow in the future, it may help you determine whether or not you feel confident in the company's prospects.

2. Financial strength

You can look into the regulatory filings companies make to the SEC. These documents include financial statements that can help you analyse and determine the financial strength of a specific business. Many traders search for companies that are already profitable. If a company isn't already profitable, some traders attempt to understand how the company plans to become profitable and how long it will take to achieve it.

3. Valuation

Many traders want to know how much a company is worth before buying its stock. Finding the valuation of a certain healthcare stock can help you determine if you are paying a fair price.

There are several valuation metrics you can use. A common one traders use is the price-to-earnings (P/E) ratio. This measures the price of a specific stock relative to its earnings per share.

Some P/E ratios look back to reflect a company's earnings over a past period (ie. the past 12 months). A forward-looking P/E ratio uses earnings estimates for the year ahead. Traders can compare P/E ratios of one stock with others within that industry to help them decide if that stock is cheap or expensive.

4. Dividends

Some healthcare stocks will pay their shareholders dividends, like the examples we listed, above. Traders sometimes refer to such stocks as healthcare dividend stocks. This is the amount of company earnings that they give to their shareholders. Dividends can sometimes boost a trader's overall return they gain from owning shares.

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3 Ways to Invest in the Healthcare Sector

Here are 3 common ways to invest in the healthcare sector:

1. Big Pharma Companies

Investing in companies with large market capitalisation tends to be less risky. They don't offer explosive growth, but they do have stability.

Some examples of big pharma companies include:

2. Healthcare Real Estate

With an increasing demand for healthcare, there will also be a need for more hospitals, labs, and clinics to meet the demand. Healthcare real estate investment funds, therefore, prove to be a viable option for investment. However, remember to research the credit ratings of the REITs before investing in one.

Some examples of REITs include:

3. Healthcare ETFs

If you are unsure about investing in individual health care stocks, you could also consider investing in healthcare ETFs. Healthcare ETFs are designed to track the performance of the healthcare sector, and provide an easy way to gain exposure to the sector, without having to know much about the individual companies.

ETFs include health insurance and managed-care companies, along with associated businesses, such as pharmacy benefits management, and treatment providers.

Here are some examples of healthcare ETFs:

Diversification is important for any investment portfolio, and healthcare offers great potential in this regard. Investing in healthcare shares can provide good returns, but it also has various risks attached to it. This sector offers several options and sub-sectors to choose from for your investment, so picking the right investment instrument is the first step to success.

What is a Healthcare ETF?

What is a healthcare ETF? What is the best healthcare ETF? Before we provide examples of healthcare ETFs, we must first define what an ETF is.

An ETF (exchange traded fund) is a type of security that follows a sector, commodity, index or another asset, but which traders can buy or sell on a stock exchange just like a regular stock. An ETF can be set up to track the price of a specific asset or for a diverse range of assets. An ETF can even be set up to track a particular investment strategy.

Healthcare ETFs (exchange traded funds) are funds that invest in a group of stocks from businesses that provide healthcare services, develop drugs or medical equipment, provide medical insurance or are involved in any of the many other areas of the healthcare sector.

While we can't guarantee which is the best healthcare ETF, we can provide a list of healthcare ETFs:

  1. Fidelity healthcare ETF
  2. Global Healthcare ETF
  3. Harvest Healthcare Leaders Income ETF
  4. Healthcare Reit ETF (Healthcare real estate investment trust)
  5. Healthcare Technology and Innovation ETF
  6. Invesco DWA Healthcare Momentum ETF
  7. iShares Global Healthcare ETF (Sometimes referred to as the iShares Healthcare ETF)
  8. iShares MSCI World Health Care Sector UCITS ETF
  9. Lyxor MSCI World Health Care TR UCITS ETF
  10. Principal Healthcare Innovators Index ETF
  11. Health Care Select Sector SPDR Fund (Sometimes referred to as the SPDR Healthcare ETF)
  12. Vanguard Health Care ETF

The above ETFs are common ETFs that traders invest in. They may be of interest to you, depending on your preferences, trading style and risk tolerance.

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Cyclical vs Defensive vs Value Health Care Stocks

Are healthcare stocks cyclical? Traders consider healthcare stocks as non-cyclical. Some often claim that the healthcare market, composed of pharmaceutical companies, medical insurance businesses and providers of healthcare services, tends to be more resistant to recessions and more resilient in bad economic periods.

Some traders may see this as common sense. For example, it may seem logical that people won’t cancel their health insurance plan due to an economic recession. While people may cut back on some expenses, some traders believe that people will continue to buy their necessary drugs and medical services even during difficult economic times. Because of this belief, many traders put healthcare stocks in the non-cyclical category.

Are healthcare stocks defensive? Traders often consider non-cyclical stocks to be defensive. A defensive stock is one that provides stable earnings and consistent dividends regardless of whether there is an economic boom or recession. As such, many traders consider healthcare stocks to be defensive.

Are healthcare stocks value stocks? Many traders consider large, established companies with a long history operating in the healthcare sector, such as generic drug manufacturers, healthcare Insurers and service providers, as classic value companies. As such, some traders consider several of the companies in the above list to be value stocks:

  1. Johnson & Johnson (NYSE:JNJ)
  2. UnitedHealth Group (NYSE:UNH)

However, traders often see biotechnology and small device and drug development companies as being growth stocks.

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Why Invest in Top Health Care Stocks with Admirals?

  • Invest with a well-established, regulated company that includes regulation from the UK's Financial Conduct Authority, the Cyprus Securities and Exchange Commission and the Jordan Securities Commission, among others.
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  • Open an Invest.MT5 investing account to buy shares and ETFs from 15 of the largest stock exchanges in the world.
  • Open a Trade.MT4 or Trade.MT5 trading account to trade via CFDs (Contracts for Difference) in order to go long and short a market to potentially profit from rising and falling markets!

Get started today by opening a free demo trading account so you can trade in a virtual trading environment until you are ready to go live!

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About Admirals

Admirals is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or recommendation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

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