How to Interpret the Sector

Daniel (3)
Why Healthcare Stocks

Healthcare stocks are health companies that are listed on the stock market. There are always plenty of opportunities to profit from investing in this sector. We are going to outline what factors influence this sector, what risks are involved and how to look for the types companies that offer the best return or lowest risk.

Simply put, a market sector is used to describe a part of the economy. It encompasses similar companies under one banner. For instance a hospital and an aged care home would be considered under the “Health Care” sector.

 The healthcare sector refers to all is all medical companies that sell medical related goods and services. The materials index is under the ticker SPXHC which is the measurement tool commonly used to track the performance of the healthcare sector.

We believe there is currently a huge gap between professional and everyday investors. Where professional investors have access to insights and information that normal investors do not.  We’re here to bridge that gap by providing analysis that is accessible and easy to understand.

Sector Rank
In United States

See Full Ranking Here 

6 th
Current Rank
12
Current Rank

Percentage Change Since last month

SPXHC Index decreased By
5.22%

Risks you should watch out for!

Negative regulatory changes  – The healthcare sector has lots of strong regulations impacting a vast amount of health products. These regulations not only make it more time consuming for companies to operate their business or for new products to enter into the market but they can also be very costly. If these regulations were to be increased it would make medical business operate less efficiently and result in more  regulatory costs. If regulation is increased it would be a risk to buy healthcare companies primarily due to more costs and the inability to get products to market efficiently.

The illusion of the story –   Sometimes it is very easy to get wrapped up in all the hype of a particular company that is hot on stock forums. People might be talking about a game changing innovation that would transform the industy or a new drug in development. Its important to understand that all those opinions are not based on fact and not necessary true. The stock price may rise in the short term but once the facts are revealed which might not be as rosey as initially thought the stock could see a sharp decline.

Faults or malfunctions- 
Although this is a an obvious risk, it can have a major impact on healthcare companies in a disastrous way. If a health product is faulty it can have dire consequences and has a greater impacted then other ordinary products because peoples health is at risk. Any faults sideaffects or malfuctions of any health product will not only hurt the companies reputation it can also lead to investigations resulting in large fines. Although this is a minor risk due to the intense scrutiny regulators place on each medical product it is still a possibility.

FDA Rejection –  

This opportunity arises in the FDA review stage of the drug approval process. If you are unfamiliar with the basic timeline for drugs companies see the timeline below. This type of risk occurs when the results of FDA review reject the drug and prevent the company to manufacture and distribute the Drug. This risk has the greatest effect on Biotech companies and their stocks price.  This is due to the fact that Biotech companies have one or two drugs that are in development and the success of the FDA review can make or break a biotech company.

Risks you should watch out for!

Negative regulatory changes  – The healthcare sector has lots of strong regulations impacting a vast amount of health products. These regulations not only make it more time consuming for companies to operate their business or for new products to enter into the market but they can also be very costly. If these regulations were to be increased it would make medical business operate less efficiently and result in more  regulatory costs. If regulation is increased it would be a risk to buy healthcare companies primarily due to more costs and the inability to get products to market efficiently.

The illusion of the story –   Sometimes it is very easy to get wrapped up in all the hype of a particular company that is hot on stock forums. People might be talking about a game changing innovation that would transform the industy or a new drug in development. Its important to understand that all those opinions are not based on fact and not necessary true. The stock price may rise in the short term but once the facts are revealed which might not be as rosey as initially thought the stock could see a sharp decline.

Faults or malfunctions- 
Although this is a an obvious risk, it can have a major impact on healthcare companies in a disastrous way. If a health product is faulty it can have dire consequences and has a greater impacted then other ordinary products because peoples health is at risk. Any faults sideaffects or malfuctions of any health product will not only hurt the companies reputation it can also lead to investigations resulting in large fines. Although this is a minor risk due to the intense scrutiny regulators place on each medical product it is still a possibility.

FDA Rejection –  

This opportunity arises in the FDA review stage of the drug approval process. If you are unfamiliar with the basic timeline for drugs companies see the timeline below. This type of risk occurs when the results of FDA review reject the drug and prevent the company to manufacture and distribute the Drug. This risk has the greatest effect on Biotech companies and their stocks price.  This is due to the fact that Biotech companies have one or two drugs that are in development and the success of the FDA review can make or break a biotech company.

Opportunities to look for!

Positive Regulatory Changes  –
The healthcare sector has lots of strong regulations impacting a vast amount of health products. These regulations not only make it more time consuming for companies to operate their business or for new products to enter into the market but they can also be very costly. If these regulations were to be decreased it would allow medical business to operate more efficiently and result in less regulatory costs. If regulation is reduced it would be a good opportunity to buy healthcare companies primarily due to less costs and the ability to get products to market more efficiently.

FDA Approval –

This opportunity arises in the FDA review stage of the drug approval process. If you are unfamiliar with the basic timeline for drugs companies see the timeline below. This type of opportunity occurs when the results of FDA review approve the drug and allow the company to manufacture and distribute the Drug. This opportunity has the greatest effect on Biotech companies and their stocks price.  This is due to the fact that Biotech companies have one or two drugs that are in development and the success of the FDA review can make or break a biotech company. 

Merger/Partnership- This opportunity is most common when a BioTech company has a successful FDA review and a Pharmaceutical company  forms a partnership with the Biotech company and decides to help finance the manufacturing of the drug. This will help ease any concerns the market might have about ability to get the drug into production for the biotech company. Mergers are also an opportunity if a merger does occur between two healthcare companies this will also cause a rise in the stocks price.

Innovation – 
In the healthcare sector innovation can easily be prevented as the approval process for new products goes though a very tough and lengthy approval process. As most products in the medical field are relatively old their are plenty of avenues for innovation and improvement However these innovations are subjected to a strict approval process. If there is a new innovation that breaks though this approval process it is an amazing opportunity for the medical company to break into a market that has consistent inelastic demand.

The basic timeline for creation of new drugs

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Different Types of Healthcare

Daniel (6)

Bio Technology

ABOUT –  Bio tech companies are mostly small companies in development of one or two new drugs.  Bio Technology is the riskiest out of all the health care types. The primary reason why this area of healthcare is so risky, is due to the  variety of different products researched but never make it to market. Although if one product has potential and has a FDA approval the Bio tech stock could skyrocket. Obtaining FDA approval can make or break a biotech company. If you are interested on the timeline for the creation of a new drug refer to the timeline above. 

Level of Risk
Very HIgh
Profit Potential
Very High

Pharmaceuticals

ABOUT –  Pharmaceutical companies are companies that have multiple drugs that are already approved and manufactured on a mass scale. This allows the company to have a consistent revenue source that can be used to fund research and development on alternative drugs or partnering with small Biotech companies that have had successful FDA approval.  Although Pharmaceutical companies are less risky to invest in than most Bio-Tech companies they are still considered a risky investment.  This risk can be attributed to an unsuccessful FDA Approval in their R&D or any faulty drug that doesn’t work the way that its meant to. 

Level of Risk
High
Profit Potential
High

Medical Equipment

ABOUT – This area of healthcare is extremely vast with multiple different products ranging from scalpels to large MRI machines.  The risks for these suppliers are relatively low as once the product is approved it is likely that there would be very stable demand. The main risk occurs for innovators in this space that going up against intrenched medical  products that have been in place for many years. These companies involved in  innovative medical equipment would also be subject to a timely and strict approval process. The potential for success once approved is high as it would be used and standardized across the industry in a very demand inelastic market  

Level of Risk
Medium
Profit Potential
Medium

Medical facilities and Insurance

ABOUT –   Medical facilities a variety of clinics ranging from hospitals to blood testing laboratories. There are five main health insurance providers that dominate the market these are UnitedHealth Group Inc, Anthem Inc, Aetna Inc, Humana Inc and Cigna Corp. Out of all the companies in the healthcare sector medical facilities insurance stocks have the lowest level of risk.  This is due to demand being mostly inelastic. This means that demand is mostly fixed regardless of any changes in price or quality. Also this area of healthcare is supported more from the Government then other areas in the healthcare sector.

Level of Risk
Low
Profit Potential
Low

Alternatives to investing in specific Healthcare stocks

Healthcare are a great way to get some exposure to the rapidly growing mining sector. An ETF or exchange-traded fund is a fund that invests in a variety of mining companies. You can invest in an EFT and not have to worry about individually picking and selecting mining stocks.  Below is an example of a Healthcare EFT if you’re not sure where to look.