The chief market strategists at Wall Street's biggest banks and investment firms don't get things right all the time. In fact, as Foolish columnist Morgan Housel pointed out in "The Blind Forecaster," you'd be shocked at how disastrously bad their track record is.
But what about healthcare stocks and sector trends? And can savvy investors capitalize on Wall Street's oversights? We asked three Fools to pinpoint what they believe Wall Street is overlooking right now in healthcare.
Todd Campbell: Wall Street may be underestimating the impact that biosimilars could have on the healthcare industry. Biosimilars are similar, but not exact copies, of biologic drugs that are among the planet's most expensive and profitable medicines.
Until recently, the fact that biologics are made from living organisms made them too complex and costly for generic drugmakers to duplicate. However, innovation and an FDA that has finally come up with a pathway for the approval of biosimilars is turning biosimilars into one of the most exciting areas in drug development.
Companies like Novartis' (NYSE:NVS) Sandoz unit and Pfizer's Hospira business are knee-deep in researching biosimilars. Biotech goliaths Amgen (NASDAQ:AMGN) and Biogen (NASDAQ:BIIB) are working on them too. The flurry of activity comes ahead of roughly $70 billion in branded biologics losing patent protection by 2018. And that's likely to be just the start. That's because researchers estimate that healthcare payers will be forking over roughly $178 billion for biologic medicines by 2017.
Dan Caplinger: One trend that has been going on for years is the move among employers to self-insure more of their healthcare-cost exposure.
Rather than simply paying premiums to health insurance companies for coverage that begins at the first dollar of covered expenses, many employers retain responsibility for paying a certain amount of those expenses themselves. The more risk an employer retains, the less the insurance company takes on, and that in some cases can limit an insurer's profits.
As currently structured, most employers use health insurance companies to administer their self-insurance programs. This cushions the financial blow by giving insurers a separate revenue stream that's also conveniently risk-free. Yet as employers get smarter about running their self-insurance programs, insurers could find themselves increasingly cut out of the loop -- especially if they try to charge so much that it gives employer-clients the incentive to develop their own methods for coverage healthcare costs.
Moreover, already, companies that have a financial interest in getting employees to use fewer medical services have led to slower increases in healthcare costs. In the long run, the impact of self-insurance and other measures that put fiscal responsibility on employees and their employers rather than insurance companies will change the face of the healthcare industry.
Cheryl Swanson: Gene sequencing is a trend Wall Street doesn't fully understand, and the growth potential is truly staggering. Thanks to faster, cheaper sequencing, new market opportunities keep emerging in oncology, infectious disease, reproductive health, and population studies. Just how big is the potential market? McKinsey & Company listed next generation genomics, including sequencing, as one of 12 technologies that will fundamentally transform our lives. The consulting company estimated that the impact on the global economy could reach $1.6 trillion by 2025.
Mapping the human genome was one of humanity's greatest scientific breakthroughs. While the ability to access your own genetic information is still a relatively young phenomenon, it can predict our susceptibility to certain diseases, such as cancer. In the future, it's likely to become an everyday tool for doctors, consumers, and governments. The sequencing of many individuals could provide new information on the genetic basis of poorly understood diseases, with the potential to provide new therapies.
The biggest sequencing company, Illumina (NASDAQ:ILMN), projected revenue growth of 20% in 2015 and likely has multiple years of double-digit growth ahead. A small cap to watch in the molecular testing space is Luminex (NASDAQ:LMNX), which has two promising diagnostics technologies expected to launch before the end of 2015 that should drive its revenue upward.
Cheryl Swanson owns shares of Amgen, Inc., Apple, Biogen Idec, Illumina, and Luminex. Dan Caplinger owns shares of Apple. Todd Campbell has no position in any stocks mentioned. The Motley Fool recommends Apple and Illumina. The Motley Fool owns shares of Apple. 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.