Everybody needs healthcare — or will, at some point. And, when there’s something everyone needs, there’s a huge opportunity for investors.
About $8.3 trillion is spent on healthcare globally. Almost half — roughly $3.8 trillion — is spent in the U.S. With the healthcare sector growing significantly faster than the overall global economy, the numbers will almost certainly be much larger by the end of the decade.
Image source: The Motley Fool
How can investors profit from this growth? Here’s what you need to know about investing in healthcare stocks.
Different types of healthcare stocks
The healthcare sector is so broad that there are several different kinds of healthcare stocks. Four of the most important types are:
- Drug stocks: Drugmakers focus on developing drugs that treat or prevent diseases. Biotech companies use live organisms such as bacteria or enzymes to develop drugs, while pharmaceutical companies use chemicals. Drug stocks range from huge companies with billions of dollars in sales each year to small biotech firms with no products on the market yet.
- Medical device stocks: Medical device companies make devices used to care for patients. The devices range from disposable gloves and thermometers to artificial heart valves and robotic surgical systems. Medical device stocks include many health tech stocks, as well as medical equipment stocks.
- Payer stocks: Payers, including health insurers and pharmacy benefit managers (PBMs), play an especially important role in the U.S. healthcare system. Insurers charge premiums to individuals and employers to pay for healthcare costs, while PBMs administer prescription drug benefits for employers and health plans.
- Healthcare provider stocks: Healthcare providers stand at the front lines, delivering healthcare services to patients. They include hospitals, physician practices, home health companies, and long-term care facilities.