Health Stock Performance
Health stocks represent a major sector for both the stock market and the economy. The health sector is industry diverse, consisting of companies from drug makers, suppliers of medical equipment and supplies to biotech labs and healthcare providers of various healthcare facilities including hospitals, nursing homes and other health clinics. To gauge health stock performance as a whole, investors may use one of the various healthcare market indexes. To further evaluate health stock performance, investors should look into the long-term trend and any short-term price volatility. Stock valuation can also help explain current health stock performance.
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Stock Indexes
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A health stock index helps investor track the overall market performance of the health sector. Several financial organizations, including Standard and Poor's, Dow Jones and the NYSE, design and publish their own versions of healthcare stock indexes that are different in selecting component stocks and assigning weights. The NYSE Health Care Index is a broad-based index covering all health industries with the most weights given to the pharmaceuticals. The index also includes stocks of companies from other countries besides the United States. Using a broad market index, investors have the knowledge about the average health stock performance, avoiding potential bias from certain market areas.
Long-term Trend
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Health stock performance in the long run likely exhibits an up trend as the need for health care continues to grow, at least in the U.S. amid the retirement of its so-called baby boomers. According to the Congressional Budget Office, health sector may contribute half in the U.S. economy at its height of growth. However, unlike some fast growing industries, such as technology, that may experience major breakthroughs along the way, health sector will see a more steady growth with one industry playing the leading role sometimes and another industry other times. For example, advances in medical equipment over time will also lead to the growth of equipment users of hospitals and other health facilities.
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Price Volatility
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Health stock performance tends to be stable even in the short term. While growth stocks in general often show greater price volatility as they go through cycles of boom and bust, health stocks have the characteristics of defensive stocks and usually are non-cyclical. Demand for health care is not so contingent on the state of the economy, and thus earnings for health stocks don't fall with every down turn of the economy. Since stock performances are based on earnings, with no major earnings disruptions, health stock performance most likely will hold up against poor market conditions elsewhere.
Stock Valuation
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To evaluate current and predict future health stock performance, investors may compare health stock performance with their own stock valuation. Stock valuation reveals what a stock is truly worth to individual investors regardless of its market performance. If the market values a stock at a price more than the intrinsic value as seen by an investor, the market has overvalued the stock, making it too expensive for the investor to buy. Certain health companies may display less current value from lack of existing earnings, such as innovative biotech firms with growth prospects. But on the other hand, their market performance may show a higher valuation after accounting for potential future growth in earnings. Such health stock performance may be justified in terms of valuation.
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