The healthcare sector has been on fire the last few years, handily beating the broader markets. Much of the boost has come from biotechs, but even the broader Healthcare Select Sector SPDR ETF (NYSEMKT:XLV) has nearly doubled the S&P 500 return since the start of 2013.
Even after already climbing to such heights, read on to see why our analysts think the healthcare sector is still the best place for your money:
Sean Williams: The healthcare sector can return investors' money many times over, but it can also just as easily erase an investment in a flash.
Nonetheless, the healthcare sector could very well be the best sector to invest your money because of its ability to improve people's quality of life. Typically, the best companies you can invest in are ones that have the capacity to improve society for decades to come, often seeing huge financial returns along the way. Healthcare companies, which are developing life-changing drugs, devices, and diagnostics, perfectly fit the bill. These are companies you can be proud to own when you go to sleep each night because you know they're making a real difference in people's lives.
Gilead Sciences (NASDAQ:GILD), for instance, has developed two oral hepatitis C drugs, Sovaldi and Harvoni, which are an effective cure for hepatitis C. Not only did Sovaldi and Harvoni deliver cure rates of 90%-plus in a majority of clinical trials, but in many instances these drugs can be administered without the need for interferon or ribavirin. Interferon has been shown to cause flu-like symptoms in patients, while ribavirin is known to cause rashes. Let's not also bypass the fact that some genotype 1 patients will need just eight weeks of treatment as opposed to the prior standard of care, which could have required 12 or 24 weeks of treatment.
According to estimates from the World Health Organization there are 180 million people worldwide with HCV. Therefore, Gilead's novel therapies represent a multi-decade opportunity to save millions upon millions of lives, and to make significant money for shareholders in the process.
Todd Campbell: Healthcare stocks have one very big and very important thing going for them: Over the next 20 years, millions of aging baby boomers will be visiting doctors more often, filling more prescriptions, and having more procedures. According to the U.S. Census, 76 million people were born between 1946-1964, and that means that by 2030, roughly 20% of America's population will be 65 or older.
Investors looking to benefit from a bump up in visits to doctors can consider owning hospitals, such as HCA Holdings Inc. (NYSE:HCA). Hospitals like HCA are increasingly acquiring healthcare providers, as well as expanding into urgent care markets, to drive outpatient revenues up and boost referrals for inpatient care.
Also, since seniors fill two times the number of prescriptions as people under age 55 do, there should be a steady tailwind for pharmacy revenue over the coming decades and that could mean that drug stores like CVS Health (NYSE:CVS) might be worth owning for the long haul. Drugmakers may also make sense given that they're increasingly developing more specialized, higherpriced, and more profitable medicines. And health insurers like UnitedHealth Group (NYSE:UNH) could benefit nicely from rising demand for Medicare Advantage plans, too.
If stock picking individual winners feels a bit too risky, investors could always consider owning a healthcare ETF, or mutual fund, instead. The aforementioned Healthcare Select Sector SPDR ETF, for example, offers up exposure across the entire basket.
Brian Orelli: One of the things I really like about the healthcare sector is that it's fairly recession resistant. Even when people are having trouble paying their bills, they still get sick and need treatments.
I say recession resistant and not recession proof because there are still intricacies of the sector that make them susceptible to downturns during recessions -- it's just that the downturns for many of the companies are likely to be less extreme than in other sectors.
Health insurers, for instance, have typically lost some of their business during recessions as the number of employees in employer-sponsored plans shrunk. And laid-off workers with medical conditions were more likely to go on COBRA, increasing the percent of income spent on medical expenses. With Obamacare requiring almost everyone to have coverage, this could be less of an issue, although it might mean shifting of revenue from companies that focus on employer plans to those that focus on plans in the health exchanges and Medicaid.
Drugmakers' income isn't as tied to the economy since most people can't cut back on their medication. But smaller biotechs typically decline when the economy and the stock market tank because of a shift in investors' risk tolerance. As investors sell out of the biotech sector, the valuations drop until the potential rewards after positive clinical trial data or regulatory approvals are good enough to justify the risk of failure.
If you're investing in the sector for its recession resistance, your best bet is to buy one or more large pharmaceutical companies. Even if they slip a little during the next recession, you'll get a nice dividend, which you can use to buy more shares at a discounted price.
Brian Orelli has no position in any stocks mentioned. Sean Williams has no position in any stocks mentioned. Todd Campbell owns shares of Gilead Sciences. The Motley Fool recommends CVS Health, Gilead Sciences, and UnitedHealth Group. The Motley Fool owns shares of Gilead Sciences. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.
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