Published February 2001

Consider health-care industry to bolster portfolio

When you’ve got a headache, you reach for a pain reliever. If you’ve got a sore throat, you’ll go for the lozenges. If you cut yourself, it’s time for a bandage. And when you do these things, you probably won’t give a thought to what’s happening in the economy.

That’s why, when it comes to investing, the health-care industry rarely goes out of style. Regardless of what’s going on in the stock market, people still get sick, visit doctors, require prescriptions and undergo medical procedures.

The health-care industry has grown rapidly over the past few years and could be attractive to investors due to several important trends:

Aging populace. More Americans are getting older than ever before. The over-65 segment will expand by 55 percent during the next 20 years, according to a U.S. Census Bureau estimate. And, despite a move toward healthier lifestyles, people still generally need more health-care services as they age.

New international markets. As developing nations build their economies, they likely will devote a higher percentage of their total income toward health care.

Medicare reform. Congress continues to debate Medicare reform proposals. Ultimately, a middle-of-the-road settlement may well emerge — one that helps consumers and continues to provide growth opportunities for the health-care industry.

Within the broad heading of “health care,” companies typically fall into four segments:

Drug companies. Although prescription medicines are extremely costly to develop, a “blockbuster” drug such as Viagra or Vioxx can prove lucrative to the drug company involved.

Medical devices. Medical-device manufacturers produce products and equipment used to diagnose and treat medical conditions.

Health-care services. Health-care service providers must overcome considerable obstacles. Facing increased competition, HMOs have been hurt by not being able to pass higher costs on to consumers. And the hospital industry is in the midst of rapid consolidation.

Biotechnology. Companies in the biotech field use genetic engineering and DNA technology to produce therapies and products. Although biotechnology draws a lot of attention, there are investment risks involved. Smaller biotech firms, for example, often operate at a substantial loss, and they typically lack product diversification. Biotechs also tend to rely on outside sources to fund research and development. Finally, there’s no assurance that the Food and Drug Administration will approve the drugs that biotech firms are developing.

Although some health-care segments are riskier than others, the industry in general has a bright future. So, you may want to take a closer look. Doing so just might improve the long-term health of your portfolio.

Eric Cumley is an Investment Representative with Edward Jones Investments at 9930 Evergreen Way in Everett. He can be reached at 425-355-2008. Edward Jones is an NYSE-member investment firm with more than 7,000 locations nationwide.

Back to the top/February 2001 Main Menu