7 Undeniable Reasons to Invest in Health Care

No health-care stocks in your portfolio? Here's why you're missing out on a great opportunity.

Mar 22, 2014 at 8:00AM

You need to be in health care. There are no ifs, ands, or buts about it.

I'm not talking about working in the health-care industry (although that's not a bad idea, either). At least part of your investment portfolio needs to be in health care stocks. Here are seven undeniable reasons why. 


Source: FoolEditorial on Flickr.

1. An aging population
We're getting older. In 2009, individuals aged 65 or older made up less than 13% of the U.S. population. Within the next 16 years, that figure will jump to 19% of the population, with over 72 million Americans qualifying as senior citizens.This trend isn't limited to the United States. Many European and Asian countries face even more significant aging of their populations.

It's no secret that as people age, their need for health care-related products and services tends to increase. With a big surge in the number of older individuals across the world, there will likely be an even larger increase in demand for health care. Where there's increasing demand, there's plenty of opportunity.

2. Uncle Sam's fingers
Medicare, Medicaid, HIPAA, and now Obamacare -- the federal government has had its fingers in the middle of health care for decades. That's not likely to change too much, regardless of how the political winds may shift down the road.

Every time Uncle Sam tries something different, it opens the door for some segments within the health-care system to benefit. In recent years, provisions in the nearly $800 billion economic stimulus legislation of 2009 created a windfall for electronic health record system vendors. Hospital stocks soared with Obamacare's promise of more insured Americans. When the government makes its next big change (which it will, sooner or later), you can count on seeing some health-care companies profi from the change.

3. Soaring costs
Uncle Sam's persistent interest in health care stems from ever-growing costs. While health-care spending growth rates have slowed over the past few years largely because of the economic recession and sluggish recovery, costs have still risen. And the rate of increase will probably see an uptick in the years to come.

It doesn't require a Ph.D. in economics to realize that higher levels of spending mean that someone receives more money. Higher spending also presents an opening for companies that can control that spending.

That's why I like Express Scripts (NASDAQ:ESRX). As the nation's largest pharmacy benefits manager, or PBM, the company focuses on helping its customers hold down prescription drug spending. Express Scripts' scale of operation gives it some competitive advantages that should bode well for the company if health care spending growth rates resume historical levels.

4. Diversification
"Don't put all your eggs in one basket" is an old saying, but it's still relevant in 2014. If you don't already have a significant portion of your investments in health care, the industry presents a great way to diversify.

You can even diversify to some degree within health care itself. Stocks of big pharmaceutical companies, biotechs, health technology firms, health insurers, and medical device makers don't necessarily go up and down at the same time.  

5. Sizzling performance
We certainly can't leave out the absolutely sizzling performance of health-care stocks. Shares of Intercept Pharmaceuticals (NASDAQ:ICPT), for example, soared more than 1,100% in the past 12 months. Much of that spike came this year after Intercept reported positive results from a clinical study of its obeticholic acid drug for the treatment of nonalcoholic steatohepatitis, or NASH.

Impressive gains haven't been limited to small biotechs. Large-cap Biogen Idec's (NASDAQ:BIIB) stock has nearly doubled over the past year. Biogen's launch of multiple sclerosis drug Tecfidera powered the stock to a tremendous 2013. The drug's recent approval in Europe should help the company continue its successful streak. 

While Intercept and Biogen Idec stand out among the biggest winners, the health-care sector in general has been hot. The Health Care Select Sector SPDR (NYSEMKT: XLV) exchange-traded fund jumped nearly 34% over the past year -- well above the 20% rise of the S&P 500.

Granted, past performance is no guarantee of future success. So far this year, though, health-care stocks are outpacing the broader indexes. There don't appear to be any signs that the trend will let up.

6. Opportunities ahead
I'm bullish on health care primarily because of the opportunities that lie ahead. Genetic research holds the potential to unlock even more secrets about how diseases progress and allow new, more effective drugs to be developed.

Significant growth prospects exist outside of biotech and pharmaceutical companies as well. Organovo Holdings (NYSEMKT:ONVO) represents one great example of the potential for technology to revolutionize health care. The company uses 3-D printing to design functional human tissue. While 3-D bioprinting is still in its infancy, Organovo thinks its tissues could dramatically speed up drug discovery processes, causing new drugs to be developed more quickly and cost-effectively. 

7. Make a difference
There's one other important reason to invest in health-care stocks: You can make a difference. That might seem a little sappy, but it's true.

Look at Gilead Sciences (NASDAQ:GILD). The company's drugs have tremendously improved the outlook for HIV/AIDS patients over the past two decades. Gilead now appears poised to make a huge positive impact for hepatitis C virus patients with its new all-oral drug combo. Investing in Gilead early on allowed the company raise the cash to develop the drugs that made a difference for HIV/AIDS patients.  

Gilead Truvada

Source: Gilead Sciences 

What about buying Gilead's stock now or purchasing shares of other established health care companies? While you're not always helping the company raise additional cash, buying any company's stock helps it further its mission in other ways. For example, demand for shares keeps the stock price up, which gives companies more flexibility in making strategic acquisitions.

So go ahead and make a difference -- for your financial future, if nothing else. Invest in health care. The reasons you should are undeniable. 

To your health
Want to improve your financial health? Buy great stocks and hold on to them. As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal The Motley Fool's 3 Stocks to Own Forever. These picks are free today! Just click here now to uncover the three companies we love. 


Keith Speights owns shares of Biogen Idec, Express Scripts, Gilead Sciences and the Health Care Select SPDR ETF. The Motley Fool recommends Express Scripts and Gilead Sciences and owns shares of Express Scripts. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers