10 healthcare stocks to watch

With digital transformation and regulation impacting the industry, healthcare companies are fighting to stay healthy amid market instability. We are taking a look at the top healthcare stocks to watch, and how you can trade them.

Pharmaceuticals Source: Bloomberg

Healthcare stocks: what you need to know

‘Healthcare stocks’ is the term given to all the companies that are involved in providing medical services. The healthcare sector makes up one of the largest portions of the global economy. Broadly speaking, healthcare stocks fall into four categories:

  • Pharmaceutical companies: these are the companies involved in producing over-the-counter and prescription drugs. Often called ‘big pharma’, these companies spend large portions of their income on research and development
  • Healthcare services: these companies include the hospitals and clinics that create the backbone of any healthcare system. Although many countries choose to run a public healthcare system, private healthcare companies are available for investment. Insurance companies are also included in this sector
  • Medical device stocks: these are the companies involved in the creation and distribution of everything from artificial joints to blood pressure monitors. The products of these companies are usually always in demand
  • Biotechnology: the companies in this section of healthcare are involved in research and development of medicines and technologies derived from living organisms. They are involved in providing treatment for chronic and terminal ailments

What moves the prices of healthcare stocks?

The prices of healthcare stocks, like most assets, are moved by the forces of supply and demand. There are a broad range of factors that cause share prices to change, including news and economic data. However, there are some factors specific to the healthcare sector, such as:

  • Demographics: as people live longer, and the population grows, there is an increased reliance on medical services. The increased demand for drugs and other products can have a positive impact on share prices
  • Fiscal policy: the relationship between government spending and private companies is an important factor when assessing healthcare stocks. Policies that impact the taxation of companies, and the amount companies can charge for their drugs, can greatly impact profit margins
  • Research and development: for manufacturers, the introduction of new products has the largest impact on their share price. Prior to the drug being released, the outcome of clinical trials and any related news will affect the company’s share price
  • Regulation: any regulation that could restrict the output of manufacturing companies or cause issues in the service delivery could play out negatively across the company share prices

Top 10 healthcare stocks to watch

  1. Johnson & Johnson (JNJ)
  2. UnitedHealth Group Inc (UNH)
  3. Pfizer Inc (PFE)
  4. Novartis (NOVN)
  5. Merck & Co Inc (MRK)
  6. Abbott Laboratories (ABT)
  7. Eli Lilly and Company (LLY)
  8. Medtronic plc (MDT)
  9. Novo Nordisk (NVO)
  10. AbbVie Inc (ABBV)

The healthcare sector is huge, with plenty of stocks to choose from, and plenty of opportunities for going long and short. So, we have compiled a list of the top ten healthcare stocks by market capitalisation.

Johnson & Johnson (JNJ) - $366 billion

Johnson & Johnson (JNJ) is a multinational pharmaceutical and medical devices manufacturer based in the US. The company was founded in 1886, when it only produced one product. By 2019, JNJ consisted of 250 companies – collectively called the ‘Johnson & Johnson family of companies’.

JNJ listed on the New York Stock Exchange (NYSE) in 1944 at $37.50 per share. As of March 2019, the company’s shares were trading at $139.99.

However, JNJ’s share price still hasn’t been given the all clear after it fell nearly 20% in December 2018 following a company scandal. An investigation by Reuters revealed that the company knew its talcum powder contained cancer-linked asbestos but kept the information from regulators2 – the announcement caused JNJ stock to fall from $147.63 to $123.03 within ten days.

Johnson & Johnson chart

Johnson & Johnson chart

UnitedHealth Group Inc (UNH) - $241 billion

UnitedHealth Group (UNH) is a US health and wellbeing company that focuses on providing products and insurance services. The company was created in 1977 as the parent company of Charter Med Inc, and listed on the NYSE in 1984.

Shares of UNH reached an all-time high of $285.89 on 3 December 2018. Shortly after this high, the company was impacted by the global stock market sell-off and shares of UNH fell back to $233.33.

Despite the decline, UnitedHealth Group ranked fifth in Fortune 500’s 2018 list of US companies by revenue.3

UnitedHealth Group chart

UnitedHealth Group chart

Pfizer Inc (PFE) - $231 billion

Pfizer Inc (PFE) is a US-based biopharmaceutical company that discovers, develops and delivers medicines, vaccinations and other healthcare products. The company was founded in 1849 in New York and listed on the NYSE in January 1978.

In 2013, Pfizer’s subsidiary Zoetis (ZTS) – which is focused on animal healthcare – went public. As Pfizer still owns roughly 80% of the company, shares of PFE rose from $27.62 to $28.12 with a month.

In December 2018, Pfizer announced it would merge its consumer healthcare division with the UK company GlaxoSmithKline (GSK). While shares of GSK closed 4% higher on the day of the announcement, shares of PFE closed 0.9% lower, despite the joint venture – 68% owned by the British company – predicting sales of £9.5 billion ($12.7 billion). This was thought to be caused by investors lingering reservations following Pfizer’s unsuccessful bid to sell its consumer health business to Glaxo earlier in the year.

Pfizer chart

Pfizer chart

Novartis AG (NOVN) - $215 billion

Novartis AG (NOVN) was founded in Switzerland in 1996, as a healthcare company focused on drug development. Novartis was listed on the SIX Swiss Exchange in 1996 at $23.26.

In 2016, shares of NOVN underperformed the market in general according to the Vanguard Health Care ETF – an exchange traded fund (ETF) that tracks a basket of healthcare stocks – after it lost their exclusive patent on a handful of drugs.

But thanks to a range of new drugs, the shares soon bounced back and in March 2019, NOVN stock was trading at its highest level since January 2018. This was spurred on by sales of the company’s drug Cosentyx rising by 37% throughout the year.

NOVN chart

NOVN chart

Merck & Co Inc (MRK) - $211 billion

Merck & Co Inc (MRK) is a US-based pharmaceutical company, established in 1891 as a subsidiary of the Germany company Merck. During World War I, the company had its assets seized, but was allowed to incorporate itself as an independent American company. Merck went public in 1970 on the NYSE.

Since then, Merck & Co shares have risen from a yearly average share price of $0.54 in 1971 to an average of $77.74 in the first three months of 2019.4

In the midst of its success, Merck experienced a near-fatal blow when it was revealed one of its most popular brands of drug, Vioxx, substantially increased the incidence of heart attacks and strokes. The scandal had a major impact on shares of the company, which declined from $65.10 in August 2001 to $27.21 in September 2005.

Merck & Co Inc chart

Abbott Laboratories (ABT) - $140 billion

Abbott Laboratories (ABT) is an American healthcare company, which was founded in 1888. Abbott focused on research-based drugs, medical devices and pharmaceuticals. It is perhaps most famous for developing the first HIV blood-screening test in 1985.

Abbott Labs was listed on the NYSE in March 1980. Later, its spin-off pharmaceutical arm AbbVie was also listed, which caused shares of the parent company to open lower – trading at $32.05 on 2 January 2013 compared to $65.53 on 31 December 2012.

It took the company until September 2018 to reach the pre-split price again. The slow recovery was also attributed the lawsuit that alleged ABT bribed doctors to prescribe its drug TriCor.

Abbott Laboratories chart

Eli Lilly and Company (LLY) - $128 billion

Eli Lilly and Company (LLY) is a US pharmaceutical company, with operations in more than 18 countries. Founded in 1876 by chemist Eli Lilly, it started trading on the NYSE a century later, in June 1972, at $4.02 per share.

Eli Lilly had experienced decades of success on the back of its mass-production of the polio vaccine and insulin. But in August 2000, the company’s exclusive patent over the drug Prozac – which was responsible for almost a third of the company’s sales – expired. In a single trading day, Eli Lilly’s share price fell by nearly a third, from $108.93 to $77.00.

Then in 2005, Eli Lilly was the centre of controversy surrounding the same drug, as the British Medical Journal revealed that there was a link between the drug and suicidal behaviour.5 In late December 2018, shares of Eli Lilly finally reached the pre-Prozac blues price of $108.00, following the successful initial public offering (IPO) of its animal health unit Elanco (ELAN).

LLY chart

LLY chart

Medtronic plc (MDT) - $125 billion

Medtronic (MDT) is one of the world’s largest medical technology and services companies, providing everything from cardiac devices to diabetes monitors to more than 70 million global patients. It was created in early 2015 out of a merger between Medtronic and Covidien.

The company was listed on the NASDAQ stock exchange in 1964, and then on the NYSE in 1977 – it continues to trade on the NYSE today, under the ticker MDT.

Despite overall growth, Medtronic’s share price suffered in early 2019 after the company’s chief financial officer announced that tax regulations would impact growth forecasts – this caused shares of MDT to fall by 6.49%, from $88.12 to $82.43, on 7 January.

Novo Nordisk (NVO) - $121 billion

Novo Nordisk (NVO) is a Danish multinational pharmaceutical company that manufactures products, including diabetes care medication and hormone replacement therapies. The company was created in 1989 through a merger of two Danish companies – Novo Industri and Nordisk Gentofte.

The company’s common shares are listed on the NASDAQ Copenhagen, and its secondary stock is listed on the NYSE.

In early February 2013, Novo Nordisk experienced a large regulatory setback after the FDA denied approval of its drug Tresiba – delaying the launch of the drug by several years. The failure caused NVO to lose 80 billion Danish krone (Kr.) from its market capitalisation, when its share price fell from Kr.1402.27 ($214.00) to Kr.1252.87 ($191.20).

But as of 2019, Novo Nordisk produces approximately half of the insulin sold commercially around the world. So, as more and more people are diagnosed with diabetes, the company’s sales continue to grow.

AbbVie Inc (ABBV) - $119 billion1

AbbVie Inc (ABBV) was created after Abbott Laboratories split into two publicly traded companies. The separation became official on 1 January 2013, and AbbVie was listed on the NYSE on 2 December 2013. As the company was a spinoff, the shares were offered through a distribution rather than an IPO – this means that there was no fixed offer price. However, within hours the stock was up 1% from the opening price of $34.40.

AbbVie launched with a handful of Abbott Labs’ best-selling drugs, and quickly gained market capitalisation of more than $50 billion.

At the start of 2018, shares of ABBV increased in price on the back of promising clinical trial results and rising sales. However, on 22 March 2018, lung-cancer drug Rova-T flopped in testing, which caused the share price to fall from $112.41 to $98.07. Over the next year, shares of ABBV didn’t regain the lost ground.

ABBV chart

ABBV chart

What to bear in mind before trading healthcare stocks

There are two ways that you can get exposure to healthcare stocks: investing and trading.

When you invest in healthcare stocks, you buy shares in the individual companies or a healthcare ETF outright. This is done in the hope that they increase in price, and you can sell them at a later date for a profit. Along with the physical shares in the company, you would receive shareholder rights and any dividends that are paid.

If you decide to trade healthcare stocks instead, you would have the opportunity to speculate on the shares and ETFs whether they are increasing or decreasing in value. This means that you can focus on shorter-term market movements that might occur when news and regulatory announcements hit the market.

You can trade on healthcare stocks via derivative products, such CFDs. As this product is traded using leverage, you would only need to put down a small initial deposit in order to gain full market exposure. Leverage can potentially make your money go a lot further, and magnify your profits, but it can also magnify your risk.

What’s next for healthcare stocks?

Deloitte released its predictions for the healthcare sector in its 2019 Global Health Care Outlook – the company expects global healthcare spending to increase at an annual rate of 5.4% between 2017-2022, as the aging and growing population starts to take its toll.6

As the focus of the industry shifts from treatments to investing in prevention, it remains to be seen how each company involved in the sector adapts. And with the advancements in artificial intelligence, healthcare companies are increasingly looking to technology to personalise healthcare and patient interactions.
Keep an eye on events that could impact the healthcare industry with our news and trade ideas.

Healthcare stocks summed up

There is so much information to take onboard before you start trading healthcare stocks, so we’ve summarised a few key points:

  • Healthcare stocks are all the companies that are involved in providing medical services
  • The healthcare sector makes up one of the largest portions of the global economy
  • Healthcare stocks fall into four categories: pharmaceutical, healthcare services, medical devices and biotechnology
  • There are range of factors that cause healthcare share prices to change including demographics, fiscal policy, research and development, and regulation
  • Investing in healthcare stocks enables you to look at longer-term market movements
  • Trading healthcare stocks enables you to look at interesting short-term volatility that could play out across the share prices of the companies
  • It is important to keep an eye on the latest industry trends and the forecast for healthcare stocks

Footnotes:
1 Correct at the time of writing, 18 March 2019
2 Reuters, 2018
3 Fortune 500, 2018
4 MacroTrends, 2019
5 British Medical Journal, 2005
6 Deloitte, 2019


Deze informatie is opgesteld door IG Europe GmbH en IG Markets Ltd (beide IG). Evenals de disclaimer hieronder bevat de tekst op deze pagina geen vermelding van onze prijzen, een aanbieding of een verzoek om een transactie in welk financieel instrument dan ook. IG aanvaardt geen verantwoordelijkheid voor het gebruik dat van deze opmerkingen kan worden gemaakt en voor de daaruit voortvloeiende gevolgen. IG geeft geen verklaring of garantie over de nauwkeurigheid of volledigheid van deze informatie. Iedere handeling van een persoon naar aanleiding hiervan is dan ook geheel op eigen risico. Een door IG gepubliceerd onderzoek houdt geen rekening met de specifieke beleggingsdoelstellingen, de financiële situatie en behoeften van een specifiek persoon die deze informatie onder ogen kan krijgen. Het is niet uitgevoerd conform juridische eisen die zodanig zijn opgesteld dat de onafhankelijkheid van onderzoek op het gebied van investeringen wordt bevorderd, en dient daarom als marketingcommunicatie te worden beschouwd. Hoewel wij er niet uitdrukkelijk van weerhouden worden om te handelen op basis van onze aanbevelingen en hiervan te profiteren alvorens ze met onze cliënten te delen, zijn wij hier niet op uit. Bekijk de volledige disclaimer inzake niet-onafhankelijk onderzoek en de driemaandelijkse samenvatting.

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