With the world in the midst of a global pandemic, medical supplies and vaccinations are hot news items, and recently, SG Hiscock boutique fund managers have been frequently asked by clients about investing in healthcare companies that offer cures, treatments or vaccinations. These companies supply products that may save lives, making them an attractive option for investors who want to make a serious profit whilst helping humanity invest in life-saving cures, technologies and treatments. Read on to learn more about the merits of investing in healthcare stocks to help you determine if it’s something that you should consider.

Healthcare Stocks Broadly Fall into Two Categories

There are currently 50 healthcare stocks listed on the ASX, all of which offer a broad range of products. Generally, they can be split into the below:

  • Healthcare equipment and supply manufacturers or service providers – These companies design, produce, market and distribute healthcare products but they’re also providers of healthcare services and owners of healthcare facilities.
  • Pharmaceutical and biotechnology companies – These companies research, develop, produce and market drugs, treatments and other healthcare products.

When investing in any stocks you must always be diligent in looking at companies who have strong reinvestment rates, healthy balance sheets as well as businesses with a durable competitive advantage. Relying on successful fund managers to take out the guesswork and provide the due diligence for you is highly recommended.

The Attraction of Investing in Healthcare Stocks

Investing in healthcare, as opposed to a banking or telecommunications, you’re more likely to feel the personal satisfaction that you are investing in a stock that could potentially make a huge difference to health around the world. Additionally, many companies in the healthcare sector are growing earnings far above the average of the ASX 200 with consistently high profit margins.

Furthermore, many companies that create and sell life-saving therapies or technologies are less to have their revenue impacted by macroeconomic concerns.

The Downside of Healthcare Investment Funds

When it comes to healthcare, very few investors would possess the scientific insight to assess the likelihood of success of different companies’ products in development.

With the biotech and pharma companies, the investment case is frequently a binary outcome, either:

  • the science works and/or the product is approved for use in major healthcare markets making the stock price goes up dramatically
  • it fails and the share price goes to zero unless the company can find new sources of funding or new products

Even for specialised scientists working in the field, the outcomes of many therapeutic development processes are unpredictable so investing in particular healthcare stocks can be quite a risk.

Choosing Healthcare Stocks

When looking at a pharma or biotech company with plenty of promise, there are quite a few questions you can ask, here are just a few:

Have they had success before?

Previous success in steering drugs through the FDA (United States Food and Drug Administration) and TGA (Australian Therapeutic Goods Administration) approval process provides some indication as to the likelihood of success.

Does management have an interest in the company?

Ownership aligns the management team with investors, and gives them an incentive to push the product through the various phases of approval and even towards a trade sale with a large pharma company.

How big is the market?

Ideally when investing in healthcare stocks it is preferable to look at those companies operating in illnesses with large global markets such as cancer, diabetes, neurological disorders and immunological diseases. 

How diverse is the company’s pipeline?

Investing in a company that has branched out in the healthcare field may be more appealing than a company that is tied up in a few items or potential developments and awaiting approvals. One that looks at both technology as well as pharmaceutical could be a better investment as both offer a steady ROI.

Investment Fund Managers Melbourne Know and Trust

Even for very experienced investors, analysing prospective companies in the healthcare sector for the first time can be overwhelming. As with all investment funds, it is highly recommended that you engage the services a fund manager who is highly experienced and has a reputation for success. SG Hiscock Fund Managers Melbourne, has over 20 years’ experience and has a portfolio of established medical technology companies driving innovation. Get in touch with our team today and start your investment journey to help you ensure future financial security.