Healthcare stocks promise maximum gains with least amount of risk

Adding the Best Healthcare Sector Stocks to your Portfolio can Lead to Profits over Time, Especially when the Company Offers a Broad Set of Essential Services or Products.


Healthcare investments are stocks, mutual funds or ETFs involved in the healthcare industry.  Healthcare sector stocks involve a variety of industries, including hospitals, health insurance providers, medical devices and technologies, and pharmaceuticals.

If you are adding a healthcare investment such as a drug stock to your portfolio, you may want to consider a drug company that has been paying dividends, or one with a diverse portfolio.

Understanding the offerings within healthcare sector stocks

Drug stocks have a special appeal for many investors looking for healthcare investments. They assume that as the baby-boom generation goes through late middle age and beyond, demand for drugs will skyrocket. That’s undoubtedly true.

However, pharmaceutical companies are more speculative than many investors in healthcare investments realize.

Drug companies often invest tens if not hundreds of millions of dollars to create, test and secure regulatory approval for a single new drug. Even then, it may not manage to recover its investment before its patent expires.

Even when pharmaceutical industry research succeeds and creates new products worthy of healthcare investments, drug companies have to live with the constant threat of competition from breakthrough products that work better and/or are cheaper. But sometimes, drug company research fails to produce the hoped-for results. This failure may only become apparent with unsatisfactory results from the lengthy, costly drug trials required to gain regulatory approval.

Meantime, we continue to see attractive investment opportunities among the top medical device manufacturers. That includes Steris plc. It’s a market leader in the growing number of product categories in which it operates. That brightens the outlook for its investors.

Steris plc, symbol STE on New York, is an attractive buy for investors seeking long-term gains in healthcare sector stocks

Steris sells equipment and other products and services used in hospitals and laboratories.

These include anti-microbial and routine skin care products; biohazardous waste management systems; cleaning/decontamination systems; contract sterilization; environmental decontamination products; and food safety products.

Other products and services include high temperature sterile processing systems; low temperature sterile processing systems; microbial reduction services; patient positioning and transport systems; pure water systems; surgical lights; and surgical tables.

The company has approximately 13,000 employees worldwide and serves customers in over 100 countries. Steris moved its corporate domicile to Ireland in 2019 to benefit from that country’s lower tax rates. However, it’s headquartered in the U.S.

Growth by acquisition adds risk for Steris, especially with purchases as big as last year’s recent acquisition of Cantel.

Cantel Medical let Steris enter a new market

Steris now operates in four segments: Healthcare, Applied Sterilization Technologies, Life Sciences, and Dental.

Steris added its fourth segment — Dental — to its other three long-time units after it made a key acquisition last year.

In June 2021, Steris completed the acquisition of New Jersey-based Cantel Medical Corp. (symbol CMD on New York). The cash and stock acquisition was valued at $4.6 billion.

Cantel is a leading provider of disposable infection products used in endoscopy, but it also has a strong presence in the dental market. In 2019, it paid $775 million to buy dental-equipment maker Hu-Friedy Manufacturing. Hu-Friedy is a long-time maker of dental instruments and reprocessing equipment. (Reprocessing is the cleaning, disinfecting and sterilization of reusable instruments and equipment.)

The deal helped Cantel build out its portfolio of infection prevention solutions including consumables, instrumentation and workflow management programs for dental practitioners. It also complemented Cantel’s previous device reprocessing offerings in both the medical and dental markets. Meanwhile, Cantel also makes a range of single-use products including surgical masks and the towels and bibs used in dental offices.

Steris’s niches are lucrative — and growing

Meanwhile, Steris sells into growing markets fuelled by the needs of aging baby boomers. It also continues to benefit from its cost-cutting measures. What’s more, roughly 80% of the company’s revenue is recurring from year to year. That provides a strong base of profits to let it keep innovating to stay ahead of the competition.

We think Steris is exceptionally well positioned to prosper in an environment where infection control in a healthcare setting is more important than ever before.

The company will probably earn $7.92 a share in 2022, and the stock trades at 27.5 times that forecast. That’s a high p/e, and it leaves Steris vulnerable to a temporary setback in the event of an unfortunate earnings surprise or further market weakness. However, that’s a reasonable risk to take on in view of Steris’s strong prospects for long-term growth, and its high proportion of recurring revenue. The company raised its quarterly dividend by 7.5% with the September 2021 payment, to $0.43 from $0.40. The stock now yields 0.8%.

Use our three-part Successful Investor approach for all of your investments, including healthcare sector stocks

  1. Hold mostly high-quality, dividend-paying stocks.
  2. Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
  3. Downplay or stay out of stocks in the broker/media limelight.

Do you find the best healthcare sector stocks more appealing in uncertain economic times?

Do you prefer pharmaceutical companies or more general healthcare stocks for your portfolio?

Pat McKeough has been one of Canada’s most respected investment advisors for over three decades. He is the founder and senior editor of TSI Network and the founder of Successful Investor Wealth Management. He is also the author of several acclaimed investment books. This article was published on July 27, 2022 and is republished on the Hub with permission.

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