Industry and Sector Analysis: Healthcare

Estimated read time: 4 minutes

If you follow the news at all, you know that healthcare costs continue to rise. Health insurance is expensive, and so are prescription medications. While that isn't great for us as consumers, it might be great for us as investors.

Everyone, no matter how healthy, are consumers of healthcare. Americans spend $1,200 a year on prescription medications and between 2008 and 2016, brand name oral prescription drug prices rose 9% a year, and injectable prescription drug prices rose 15% per year. To be the breadwinner and provide healthcare for your family is expensive.

If you're thinking of investing, our industry and sector analysis of healthcare will tell you what you need to know before pulling the trigger.

Industry Outlook Summary

The outlook is rosy. The Baby Boomers represent a massive segment of the American population, and a staggering 10,000 of them will turn 65 every single day for the next ten years. That means 10,000 people a day for the next ten years will become eligible for Medicare, and Medicare is barred from negotiating drug prices with pharmaceutical companies. The sky is the limit if you're a big pharma CEO.

It's hardly a secret that Americans are overweight, but you might not realize just how big (pun intended) the problem is. More than 70% of Americans are overweight, and 40% of them are classified as obese.

This isn't doing much for our quality of life, but it's doing great things for the healthcare industry. Obesity causes expensive conditions. Estimates for the healthcare costs of obesity range from $147 billion to $210 billion per year.

While life expectancy has slightly declined in recent years (due to suicides and drug overdoses), it's still nearly 80 years old, which means the healthcare industry has decades to make money on us all. We're not dropping dead of no warning heart attacks at 45, we're dying of chronic, expensive illnesses at 78.

External Influencers

If you considering investing in the healthcare industry, there are some cautions (as there are with any investment in any sector). Current healthcare costs are already expensive and continue to rise, and this is not sustainable, especially when you factor in the eleventy jillion Baby Boomers about to flood into Medicare. There is a louder and louder outcry for single payer Medicare for all in the United States, something nearly every other industrialized country in the world already has and has had for years.

That said, never underestimate the power of the lobbyist, and the healthcare industry has a few. Healthcare lobbying was a $556 million business in 2018 and has consistently outspent other sector-related lobbying for years.

Any fight over changes to the American healthcare system is going to be long and protracted, so there are unlikely to be any fast and furious changes to the industry. If there are any changes at all, they are probably going to be incremental.

Technology and Associated Risk

Technology in the healthcare sector has made us safer and healthier in many ways. Data is centralized, so when moving from one doctor or hospital to another, our health information travels with us.

The problem is our health information is so sensitive. When we think of being hacked we often think about our bank accounts or credit cards, but what if someone stole your health information? When financial data is stolen, banks generally take care of it. They freeze your bank accounts, cancel and reissue credit cards, and mop up the mess.

Who can you turn to when your health information is hacked, and how do you keep it out of the public realm? It's a scary thought, and something the healthcare sector has to grapple with because as they move to things like cloud storage, patients are more vulnerable than ever.

How to Invest in Healthcare

While pharmaceuticals get a lot of headlines, there are several subsectors within the broader category of healthcare investing.

  • Healthcare Equipment and Services: Equipment, supply, technology, and healthcare providers (hospitals, healthcare facilities)
  • Healthcare Real Estate: Hospitals, laboratories, and residential care facilities.
  • Pharmaceutical, Biotechnology, and Life Science Companies: Drug, genetic therapy, and research companies.

If you want to invest in healthcare, there are three ways to do it: buy individual stocks, invest in REITs (in the case of healthcare real estate), and ETFs.

Individual Stocks

This isn't for beginners. You'll need to open an account with an online investment company and know how to research companies in order to make a wise investment. Some of the big names in healthcare include Pfizer, Merck, Abbott Labs, Biogen, Healthcare Services Group, and Beckton, Dickinson (these are not endorsements).


An REIT is a real estate investment trust. You can open an online investment account to buy REITs just as you would to buy stocks. Some REITs that specialize in healthcare real estate include Welltower, LTC Properties, and HCP.


This is the best option for healthcare investing for those relatively new to investing. ETFs track the performance of the healthcare sector and give investors broad exposure to a "basket" of different stocks within that sector. Vanguard offers the Health Care ETF and State Street Global Advisors offers SPDR S&P Biotech ETF.

Before You Leap

The thought of investing in the healthcare sector can make even the most cautious investors among us into Gordon Gekkos. Americans are getting older and fatter, and both of those things are expensive.

It's likely we will see some reforms in the American healthcare system in the future, but none of us has a crystal ball to predict what those reforms might be or when they might happen.

If you're looking to invest in healthcare, do your research, and stay in it for the long term. The way to make money with any investment is to play the long game. Day trading may seem exciting, but few of us know enough to make money doing it.

If you don't have a lot of investing experience, stick with REITs and ETFs. Picking individual stocks in the healthcare sector or any other requires a lot of research, even for people who know their way around finances, but a little healthcare in your portfolio looks to be a good thing.