We're only nine days into the new year, but it's likely that many new year's resolutions have already been broken. Wait a few more weeks and months, and many more resolutions will fall by the wayside.
However, there's one resolution for 2020 that many investors should make and stick to: Buy more healthcare stocks. Here are three reasons this is a resolution you should get behind sooner rather than later.
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1. Healthcare is huge
Probably the most important reason you should buy more healthcare stocks this year is the sheer size of the healthcare sector. Healthcare makes up nearly 18% of the U.S. gross domestic product (GDP), the measure of overall economic activity in the country. If you own 20 stocks, and at least four of them aren't healthcare stocks, your investing portfolio under-represents a major part of the U.S. economy.
The healthcare sector includes companies both directly and indirectly involved in providing healthcare services. Hospitals, physician clinics, and pharmacies are great examples of companies that directly provide healthcare services to patients. Biotechs and pharmaceutical companies develop and market drugs and vaccines that help patients. Medical device makers develop and market devices that help patients or help physicians who treat patients. Other companies provide products and services that support all of these already-mentioned types of healthcare companies.
Healthcare isn't just huge in the U.S. Around $7.2 trillion is spent on healthcare worldwide, according to the World Health Organization (WHO). Over half of that amount is spent outside the U.S. Investing in the stocks of major healthcare companies often provides a way to invest in the global healthcare sector.
2. Healthcare is hot
Another key reason to buy more healthcare stocks in 2020 is that it should pay off nicely. Over the last 10 years, the total return of the largest exchange-traded fund (ETF) focused on healthcare, the Health Care Select Sector SPDR ETF, has handily beaten the total return of the S&P 500 index. And while this healthcare ETF didn't outperform the S&P 500 in 2019, certain segments of healthcare did, including biotech stocks and medical device stocks.
Even better, though, healthcare is only going to get hotter. Aging populations in the U.S. and across the world will drive demand for healthcare products and services over the next several decades. This demographic trend should benefit many companies, including drugmakers, medical device makers, and pharmacies.
Investing in healthcare innovators should be especially profitable. Any company that develops a safer, more effective, and/or less costly way to treat or prevent diseases should have a massive growth runway ahead of it.
3. The David Gardner principle
David Gardner and his brother Tom founded The Motley Fool. Here's David's investing principle that's pinned on his Twitter profile: "Make your portfolio reflect your best vision for our future."
All investors might be better off following this principle. And healthcare stocks (at least, many of them) will likely reflect, to some extent, the best vision of the future that most people have.
Do you want better treatments for cancer to be developed? Do you want cures for genetic diseases? Do you want patients with chronic diseases to live normal lives? Do you want necessary surgical procedures to be safer and require less time for recovery? There are publicly traded companies working to make all of these a reality. Buying more of these healthcare stocks in 2020 will, as David Gardner suggests, enable your investment portfolio to better reflect your best vision for the future.
Which healthcare stocks?
Adding more healthcare stocks to your portfolio this year is a great idea for many investors. But which healthcare stocks should you buy? There are plenty of compelling options. Three of my personal favorites are Guardant Health (GH 4.38%), Intuitive Surgical (ISRG -0.55%), and Vertex Pharmaceuticals (VRTX -1.02%).
Guardant Health is a leader in developing liquid biopsies -- blood tests that detect cancer by identifying fragments of DNA in the blood that broke off from tumor cells. Sales are soaring for the company's two current liquid biopsy products used in helping identify the appropriate treatment for cancer patients and for helping drugmakers in developing cancer immunotherapies. Guardant Health has also developed another liquid biopsy (that's currently available for research use only) that could enable early detection of cancer and test for recurrence of cancer.
Intuitive Surgical is a pioneer and market leader in robotic surgical systems. Over 70% of the company's total revenue is recurring, with sales of replacement instruments and ancillary products the biggest contributor of this recurring revenue. Intuitive also continues to expand the ways robotic surgery can be used by introducing new products.
I view Vertex as the best biotech stock on the market right now. The company claims the only approved drugs in the world that treat the underlying cause of cystic fibrosis (CF). Vertex's newest CF drug, Trikafta, holds the potential to expand the addressable patient population for the biotech's therapies by more than 50%. Vertex is also working to develop drugs for treating several other genetic diseases and non-genetic diseases.
Whether you go with Guardant Health, Intuitive Surgical, and Vertex Pharmaceuticals or not, investing in healthcare stocks in 2020 should be a smart move to make for the health of your financial future.
