Starting early in 2020, Covid-19 put an unusually bright spotlight on the healthcare sector. Nearly three years later, while Covid hasn’t completely disappeared, the crisis has eased.
The future of healthcare post-Covid is a discussion taking place in boardrooms and households across the country. Professional investors are evaluating the healthcare trends developing post-Covid that can make money for their clients. Do-it-yourself (DIY) investors are wise to do the same.
If there is a sector that belongs in every DIY investor’s portfolio, healthcare would be it. Between the favorable demographics of an aging population to the generally stable earnings growth of healthcare companies, healthcare stocks should deliver healthy returns over the long haul.
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So, as we move out of the pandemic phase of Covid into an endemic situation where life goes on despite ongoing cases of the virus, trends are developing for a post-Covid world.
Here are three DIY investors that can ride to long-term profits.
Innovation Will Be a Big Theme
The process for developing the Covid vaccines was faster than any before. However, that doesn’t mean healthcare professionals are sitting around patting themselves on the back. On the contrary, they know innovation must keep pushing to the limits to ensure people are kept safe from future viruses.
“We can do this more quickly if we are well prepared,” Florian Krammer, Ph.D., a professor of vaccinology at the Icahn School of Medicine at Mount Sinai in New York, told Association of American Medical Colleges contributor Patrick Boyle in July.
“For influenza virus, we get variants each year. And because there are already influenza virus vaccines with an established safety record and a known correlate of protection [measurable signs that a person is immune], we can just make a strain change to update the vaccine — without the need for lengthy clinical development.”
Innovation is a theme that professional investors are watching with great interest. Covid revealed the strengths and weaknesses of the U.S. healthcare system. Innovation is needed to repair the cracks in the system.
Chris Shott, a healthcare analyst with J.P. Morgan, sees a host of innovation happening in the sector, specifically in biotech. The analyst recently said good things about Horizon Therapeutics (HZNP).
“[W]e like Horizon Therapeutics, which had one of the best product launches in that category with a drug called Tepezza for treatment of thyroid eye disease,” Shott told Barron’s in September.
In two years, Tepezza went from zero sales to $2 billion. Shott believes it could grow annual revenues to as much as $4 billion.
Demand for Home-Based and Virtual Care to Increase
A McKinsey & Company article from July suggested a shift from more expensive healthcare sites such as acute and post-acute facilities to less expensive home-based services and virtual care.
“We estimate that hospitals’ share of overall provider revenue could decline from about 47 percent in 2019 to about 44 percent by 2025, while the share of home and ambulatory sites will increase by one to two percentage points each over the same period,” stated the July 19 article.
UnitedHealth Group (UNH) is using home- and community-based care to deliver more value for the patients it serves. The company’s Optum HouseCalls program is one such initiative.
HouseCalls is an annual in-home clinical assessment that provides a complete picture of a patient’s overall health. This helps health plans manage care while reducing reimbursement issues. In addition, the service helps reduce overall healthcare spending.
UnitedHealth’s most significant move into home healthcare will happen when and if it completes its acquisition of LHC Group for $5 billion.
Either way, home-based care will only grow in the years ahead.
Healthtech Continues to Change Sector
Healthcare technology is one area of the sector that’s expected to continue gaining traction post-Covid. McKinsey & Co. estimates that the healthcare services and technology segment are expected to grow by 8.2% annually from $50 billion in 2021 to $70 billion in 2025.
One company that continues to use technology to transform its business is Becton Dickenson (BDX). Known for providing medical supplies to hospitals and other healthcare facilities, it generates about 50% of its revenue from technology solutions, making it one of the largest medical technology companies worldwide.
Wellington Management portfolio manager Ann Gallo owns BDX stock.
“Becton Dickinson trades for a lower valuation. Its business is half medical supplies and half life-sciences tools and technologies,” Gallo told Barron’s. “It offers both an attractive value proposition and a nice growth outlook."
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