Investing in Healthcare Stocks

What Is a Healthcare Stock?

Stock from a company involved in anything related to the healthcare field can be construed as healthcare stock. This can include stock in companies that range from health insurance providers for individuals to companies that manufacture medications. Some other examples of such companies include:

Companies that manage networks of hundreds of hospitals across the nation
Companies that produce medical equipment such as syringes or wheelchairs
Companies that provide ambulance services or home health visits from registered nurses
HMOs (health maintenance organizations) or PPOs (preferred provider organizations)

Why Invest in Healthcare Stocks?

Investment specialists consider healthcare stocks in general to be safe investments. It is a fact that no matter what is happening to the national or world economy, people still get sick and need products and services related to healthcare.

In times of economic downturn or recession, healthcare stocks generally fare substantially better than average in the stock market. Healthcare stocks are also considered “inelastic”, which means that a rise in the price of what a healthcare company provides is not necessarily met by a decrease in demand for that item or service. This means that healthcare stocks are relatively unaffected by some of the things that bring down the price of other stocks.

Negative Factors Affecting Healthcare Stocks

Any given healthcare stock is subject to factors that can lessen its value. For instance:

A company providing ambulance services can be adversely affected by a sharp rise in the price of gasoline.

The price of a particular pharmaceutical stock can drop after a medication is withdrawn from the market due to dangerous side effects.

Hospital corporations can be affected by unexpected costs caused by unforeseen emergencies like hurricanes or earthquakes.

Economic downturns as a whole can particularly affect hospital corporations, because they have to give an increasing amount of emergency room care to uninsured patients.

How Might Universal Health Care Impact Healthcare Stocks?

One special circumstance that might affect the growth of healthcare stocks is any political action in the direction of providing universal health care in the United States. Experts do not agree on how such action could affect healthcare stocks as a group, partially because the products and services that fall under the umbrella of healthcare stocks are so varied.

For instance, some investment authorities believe that the implementation of a national universal health care program would signal an extremely difficult period for HMOs, because those currently insured might then have the option of switching from one HMO to another. Conversely, many experts believe that pharmaceutical companies that manufacture generic medications would show increased profits under a universal health care program.

Investment specialists who see the impact of universal health care as primarily negative argue that any such plan must allow for physicians and others in an ownership role (such as companies which manufacture medical equipment) to continue to profit. Otherwise, these specialists argue, doctors and manufacturers would have little incentive to continue providing excellence in care and product.

Several health care companies, however, such as Aetna Insurance and Eli Lily Pharmaceuticals, support the idea of universal healthcare coverage. Hospital corporations, especially, would gain income that they now lose in providing emergency room treatment to the uninsured. In any case, because the United States is such a large consumer of health care products and services, even international companies in the healthcare sector would be affected by any U.S. Government programs instituting universal health care coverage.