9 Best-Performing Health Care Stocks for May 2023
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The health care sector is the largest employer in the U.S. — and that’s not expected to change anytime soon. According to the Centers for Medicare and Medicaid Services, health care spending accounted for 18.3% of U.S. gross domestic product in 2021, the latest year for which data is available, and it’s expected to reach an even higher percentage by 2030.
With that in mind, it’s no wonder that health care stocks have outperformed the S&P 500 index over the past five years.
What are health care stocks?
Broadly speaking, health care stocks are shares of publicly-traded companies that provide products and services that keep us healthy. They can be broken down into a few different industries:
Health care facilities and operators
When most people hear the term “health care,” the first thing that comes to mind is often a hospital. And some health care stocks are companies that own or operate hospitals, other health care facilities and provider organizations.
Some of these, such as Medical Properties Trust, are real estate investment trusts, or REITs, which own hospital buildings and lease them to operators.
Others, such as Tenet Healthcare, are operators that hire and manage doctors, nurses and technicians to provide health care services to patients.
Biotechnology and pharmaceuticals
The biotechnology and pharmaceutical industries produce drugs.
Technically, biotechnology and pharmaceuticals are different things — pharmaceuticals are made from chemicals, while biotechnology is made from living organisms. But in an investing context, “biotech” and “pharma” are used more or less interchangeably.
For more information about these industries, check out our guide to biotech stocks.
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Medical equipment companies produce non-drug health care products. This industry can further be broken down into medical supply companies and medical device companies.
Medical supply companies, such as Patterson Companies, produce and distribute basic products that are used in day-to-day hospital work, such as latex gloves and antimicrobial cleaning supplies.
Medical device companies, such as Medtronic, design and manufacture machines that are used to treat specific health issues, such as pacemakers and ventilators.
Health insurance and pharmacy benefit management
Health insurers and pharmacy benefit managers are sometimes collectively referred to as “payers,” as their role is to arrange payment for health care services.
Most people are probably familiar with health insurance companies such as UnitedHealth Group. After all, the majority of Americans have private health insurance, which involves paying premiums to an insurer in exchange for the insurer paying for most health care services.
Pharmacy benefit managers like ExpressScripts coordinate between insurers, drug companies and health care providers to deliver medications to patients at the lowest price possible (while still making a profit).
9 best health care stocks by one-year performance
Below is a list of nine of the best-performing health care stocks in the S&P 500, ordered by one-year performance.
Cardinal Health Inc.
Gilead Sciences Inc.
Eli Lilly & Co.
HCA Healthcare Inc.
Merck & Co.
Vertex Pharmaceuticals Inc.
Intuitive Surgical Inc.
Stock data is current as of May 1 and is intended for informational purposes only, not for trading purposes.
Pros and cons of investing in health care stocks
Many health care stocks offer investors stability and profitability in both good times and bad. But the sector is not without risks — particularly when the government is involved.
Pros of health care stocks
Recession resistance: No sector is fully recession-proof, but health care holds up better than most during economic downturns. A 2021 paper from the National Bureau of Economic Research found that health care hiring holds steady during recessions, and sometimes even increases.
Dividends: Health care providers, insurers and established biotech, pharmaceutical and medical equipment companies often have substantial cash flows from which they can pay dividends. About 10% of the dividend aristocrats — S&P 500 stocks that have increased their payouts annually for at least 25 years — are health care companies.
Cons of health care stocks
Political risk: About 8% of Americans lacked health insurance in 2022. More than 40% were underinsured — meaning they were unable to afford health care even with insurance, or had a gap in coverage. Universal health care has been a major topic of discussion in the last few elections, and some proposed reforms — such as Medicare for All — would reshape the sector in a way that might hurt investors, for better or worse.
Regulatory risk: Even in today’s privatized U.S. health care system, regulatory actions can make or break a health care company. Failure to win FDA approval can doom an experimental biotech, pharma or medical device company, and many hospitals are dependent on funding from Medicare and Medicaid to continue operating.
How to buy health care stocks
The first step to invest in health care stocks is to open a brokerage account if you haven’t already. Then, you’ll need to figure out how you want to invest. That could mean buying individual stocks or buying funds.
Individual health care stocks
It might be tempting to invest in specific health care stocks — after all, many of the stocks listed above have enjoyed double-digit gains in the last year while the S&P 500 index has fallen.
But betting too much on an individual stock can be risky — and buying several individual health care stocks can be expensive. Individual stock-pickers also need to research stocks before buying, which can be time consuming.
Health care stock ETFs
Another way to get the benefit of investing in several health care stocks is through an exchange traded fund, or ETF — of which dozens are available.
Some health care ETFs, such as the Health Care SPDR Select Sector Fund, are sector-wide ETFs that include companies from all of the industries discussed above.
Others are more industry-specific. The iShares U.S. Medical Devices ETF, for example, is focused on the medical-devices industry.
Researching an ETF is generally much quicker than researching each individual stock in that ETF — but it’s still important to do. Consider looking up an ETF’s portfolio before investing.
Neither the author nor editor held positions in the aforementioned investments at the time of publication.