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Healthcare Stocks 2020: Major Diagnosis Change

Never Before In History Has Innovation Offered Promise Of So Much To So Many In So Short Of Time – Bill Gates

Healthcare stock performance this year has quickly regained a leadership status after turning in lagging performance last year. Much of healthcare’s 2019 stock price pressure was from “Medicare for all” rhetoric by some Democratic presidential candidates. With Bernie Sanders now officially out of the 2020 presidential race, regulatory and pricing pressure concerns on the industry have largely Berned off, benefitting the healthcare sector. 

With this overhang now largely in the rear-view mirror and the COVID-19 epidemic sweeping the globe, healthcare’s critical role in developing innovative new drugs, devices, delivery systems etc. for massive unmet needs is refueling investor interest. The chart below shows healthcare’s price performance leading poll position this year. Over the last year, healthcare trails only technology as the highest returning sector. Given insatiable desire for disruptive innovations by investors, these two sectors’ outperformance is not surprising. 

                                                                          Source: Koyfin. Performance as of 4/16/20  

Health Care Performance Powered By Disruptive Innovation

If you’re an investor with a diversified portfolio of stocks, chances are that you own a healthy dose of healthcare stocks. In fact, the healthcare sector represents 15% of the S&P 500 index1.  There are a number of high quality, strong performing healthcare focused mutual funds, ETFs and stocks that have attracted investor interest given the sector’s impressive performance longer-term. The chart below illustrates healthcare’s strong outperformance versus the broader global stock market over the last 25 years.

Though technology stocks usually grab most media headlines, the magnitude and pace of healthcare innovation can rival that of the technology sector.  Healthcare company innovation should continue to revolutionize the industry leading to better patient outcomes in many ways. Some of the more powerful healthcare trends and innovations include:

  • Demographics – Population is aging worldwide and healthcare utilization typically increases with age. 
  • Changing Lifestyle – Obesity is on the rise around the world and is the leading cause of diabetes and cardiovascular disease. 
  • Innovation – New and disruptive technologies and treatments are keeping people alive with better outcomes. Examples include declining gene sequencing costs, artificial intelligence for complex drug analysis, virtual healthcare services and robotics enabling precision surgical procedures. 

Healthcare: The Enemy Of Epidemics 

With market volatility overwhelming the headlines these days, it’s helpful to take a look at the bigger picture for perspective. As the chart below shows, a dozen epidemics have occurred over the last 40 years. Despite these numerous short-term challenges, the healthcare industry innovated and conquered and  stock market growth resumed over the long-term.

Many Ways To Win:  Drugs, Devices, Delivery, Testing…. 

The healthcare industry is massive and growing with worldwide revenues estimated at $1.3 trillion2.  These revenues are largely resilient to economic cycles with high profit margins and robust cash flows. Among the largest and more prominent areas of the industry is drug discovery. As the charts below show, this area of healthcare continues to offer ample runway for attractive growth in both the global pharma and biotech drug sectors.

Success Is The Child Of Audacity – Benjamin Disraeli

There are over 600 trials underway around the world related to COVID-193. These research efforts are necessary and bold, but most are destined to fail. However, the COVID-19 epidemic will be conquered as this growing trial pipeline is backed by proven track records of resolute research and innovation over centuries.  In the past, the healthcare industry has been a punching bag by politicians and others. However, the industry’s rapid and coordinated COVID-19 response can lead to a sustained upgraded change in perception by investors longer-term. This positive diagnosis change and healthcare’s growth through innovation makes for a healthy dose in any investment portfolio built for the longer-term.


S&P Dow Jones

HBM Healthcare

3 Clinicaltrials.gov