Rhoncus morbi et augue nec, in id ullamcorper at sit. Condimentum sit nunc in eros scelerisque sed. Commodo in viverra nunc, ullamcorper ut. Non, amet, aliquet scelerisque nullam sagittis, pulvinar.

Introduction to Healthcare Sector Stocks

Healthcare sector stocks may not be immune to all the risks, but they do have some unique advantages.

Filip Dimkovski - Writer for Fortrade
By Filip Dimkovski
a man taking a selfie in front of a tv
Edited by Dragan Stevanovic

Published May 6, 2024.

a woman in a lab coat holding up some plants

Healthcare stocks usually aren't the first thing that comes to a beginner investor's mind, but there is so much choice in terms of diverse instruments and potential returns. Healthcare sector stocks are unique in many ways, but they do come with their own risks that need to be considered.

Note: The information in this blog is purely educational and should NOT be considered advice.

Healthcare Sector Stocks Overview

The healthcare sector encompasses a range of companies involved in the delivery of health services and products, including:

  • Pharmaceuticals
  • Biotechnology
  • Medical equipment
  • Healthcare facilities

Healthcare stocks are considered a relatively “safe” sector since there is a constant demand for health services regardless of the economy. The sector typically attracts investors seeking stability, growth potential, and innovation-driven returns.

Key Characteristics of Health Sector Stocks

Key components of healthcare sector stocks and their prices are innovation-driven growth, regulatory impacts, and sensitivity to healthcare policy changes, offering a healthy mix of stability and volatility.

The companies often operate under patent protection, government contracts, and regulatory approvals while being backed by research and development (R&D) costs—especially in biotech and pharmaceuticals—and a long pipeline from product development to market.

The 3 Main Sub-Industries in Healthcare Stocks

1. Pharmaceutical Stocks

These primarily focus on developing, producing, and marketing drugs and vaccines. The companies typically have large, established product portfolios and invest heavily in R&D.

Examples include:

  • Pfizer (PFE)
  • Johnson & Johnson (JNJ)
  • Merck & Co. (MRK)

2. Biotechnology Stocks

Biotech companies are primarily concerned with the use of living organisms and the development of medical treatments. In terms of size, biotech firms are often smaller than pharmaceutical companies. They focus on innovation and have a higher potential risk/reward profile.

Examples include:

  • Amgen (AMGN)
  • Biogen (BIIB)
  • Gilead Sciences (GILD)

3. Medical Device Stocks

Medical device companies include companies that design, manufacture, and sell medical devices and equipment, from surgical instruments to diagnostic machines.

Examples include:

  • Medtronic (MDT)
  • Boston Scientific (BSX)
  • Abbott Laboratories (ABT)

Other Sub-Industries in Healthcare Stocks

Health Insurance Stocks

Health insurance stocks differ from other stocks in the healthcare sector as they are more directly tied to policy changes, government healthcare spending, and healthcare utilization rates. This could make them potentially more volatile.

Examples include:

  • UnitedHealth Group (UNH)
  • Anthem (ANTM)
  • Cigna (CI)

Healthcare Infrastructure Investments

Healthcare infrastructure investments involve facilities that provide direct patient care and could be sensitive to healthcare policy changes and demographic shifts.

Examples include:

  • Hospitals (HCA Healthcare—HCA)
  • Skilled nursing facilities (Genesis Healthcare—GEN)
  • Assisted living establishments (Brookdale Senior Living—BKD)

Healthcare Supply Chain Stocks

In the healthcare sector, supply chain companies distribute pharmaceuticals and medical supplies, which is crucial for maintaining healthcare service continuity.

Examples include:

  • McKesson (MCK)
  • AmerisourceBergen (ABC)

Healthcare Technology Stocks

Technology stocks within the sector focus on developing IT solutions like electronic health records and telehealth platforms to improve care delivery and operational efficiency.

Examples include:

  • Cerner Corporation (CERN)
  • Athenahealth (ATHN)

Healthcare Services Stocks

Services stocks represent companies that provide essential healthcare services, such as diagnostic testing and patient care management. These services are vital for accurate disease diagnosis and effective treatment planning.

Examples include:

  • Quest Diagnostics (DGX)
  • LabCorp (LH)

General Stock Market Overview 

The healthcare sector has become particularly important because of global health challenges (such as the COVID-19 pandemic), ageing populations in developed countries, and technological advancements.

Historically, the healthcare sector has provided more-or-less stable returns, with certain periods of significant growth driven by breakthroughs in medical technology, drug discoveries, and regulatory changes. 

The rapid technological advancements in genomics, personalized medicine, and digital health have opened new investment opportunities. Companies that adapt to these changes and innovate could offer investors potential returns.

A Healthy Choice: How to Look at Healthcare Sector Stocks

The healthcare sector is unique due to its indispensable nature, innovation-driven growth, and resilience to economic downturns. The sector's diversity, from pharmaceuticals to health insurance, offers investors many opportunities but comes with risks.

One of the main risks is stock price susceptibility to changes in regulations, policies, and global events. Still, healthcare sector stocks should be considered and researched when creating a healthy portfolio.

» Learn more about opening a trading account with Fortrade Invest.