Even though, healthcare stocks have increased in recent years, it is not a late prospect for investors to include hospital or pharmaceutical stocks in their 2016 portfolios. However, there are still specific downsides to look out for. Below, you will find several tips on how to invest in the healthcare industry for 2016.
When looking to invest in the healthcare sector or other health industries, it is best to view companies with an unyielding balance sheet, superior secular earning propellers and strong cash flow creation that permit them to display continued growth and the ability to pay dividends.
Other additional signs that you are investing in a good company are:
- Long term customer contracts
- Long term supplier contacts
- Superior management teams that have the ability to increase dividends and generate cash flow
- Pharmaceutical companies with patent protection on their products
- Biotech companies in their maturity stages with the ability to transition to their own pharmaceutical company
It is possible that individual stocks from large healthcare companies are less risky than the ones from biotech companies. For that reason, investor should choose broader investment funds. Why? These funds are more invested in the healthcare industry compared to the broader healthcare market. In this category, some of the funds to look at are:
- Admiral Shares –Vanguard Dividend Growth Fund (VDIGX)
- Investor Shares – Vanguard Healthcare Fund (VGHAX)
- Exchange Traded Fund – Vanguard Health Care (VHT)
The Healthcare Law
Companies that run hospitals are able to take advantage of the healthcare law, boosting dividends due to having more patients with insurance passing through their healthcare system and through the Affordable Care Act, able to reduce the number of patients who are not insured. Before the Affordable Care Act, many patients that sought emergency room assistance were uninsured. However, that has changed and patients are no longer turned away from hospitals because of not being able to pay their medical bills.
The Pricing Concern
Under the novel healthcare exchanges through the healthcare law (ACA), one of the concerns for specific sections of the healthcare industry is the low prices offered for medical services. Some cooperatives in an attempt to section off a share of the market for themselves by lowering insurance plan prices have also added to the concern. For that reason, some healthcare companies have pulled back their marketing attempts at offering various exchange products. Investors have to watch what will happen in 2016 and 2017 before investing. Problems could be created if other managed healthcare providers were to pull out. In fact, this would cause not as many Americans to be insured. However, many think that pricing will get better as the unsuccessful cooperatives have to close their doors.
It is best to seek dividends as hospitals are shifting from the use of cash to grow their acquisitions and concentrating more on dividends. Be alert when it comes to changes in politics and healthcare laws. Remember that the healthcare industry in America is still evolving and many changes will be experienced in the process.