Investing in Pharmaceuticals and Health Care Stocks

Posted By Robert On Wednesday, January 29th, 2014 With 0 Comments

Welcome to Lesson 3. In this section, you’ll…

  • Find out why pharmaceutical stocks are good for your financial health
  • Buy two blue-chip heath-care stocks for your portfolio

Health Care Stocks – Protection for Your Portfolio

Like some non-cyclical consumer stocks, most health-care stocks aren’t really affected by the economy. It doesn’t matter whether almost everyone has a job and factories are firing on all cylinders, or the economy has slowed down and people are counting their pennies. People will continue to get sick, and people will continue to buy products and services to help themselves get better or to manage their illness.

Sticking with blue-chip companies as you continue to build your portfolio, we’re going to focus on a company called Pfizer (pronounced fie-zer) for our first health stock pick.

Pfizer is a large and global health care company. It operates in both the pharmaceutical and animal health care fields around the world, and manufactures both prescription and non- prescription medicines.

Let’s go buy $5000 of Pfizer shares – its ticker symbol is PFE. Again, to determine the number of shares you are able to purchase, find the share price and then divide by $5,000.

Unlike non-cyclical stocks, cyclical stocks rise when economic growth is strong and fall when the economy slows.  The Automotive industry is an example of cyclical stocks. When the economy slows, consumers have less money to spend on new cars.

Qualities to Look for in Conservative Health Care Stocks

For the conservative part of your portfolio, here’s why a company like Pfizer makes sense.

  • It’s a global company
  • It has numerous and different products across two types of consumer markets – humans and animals
  • It has the financial resources to research & develop tomorrow’s best-selling drugs.

For example, Pfizer’s Zithromax is the most-prescribed brand name oral antibiotic in the United States. Its cholesterol-lowering medicine – Lipitor – is also the best-selling in the U.S. and they are the manufactures of Viagra – the male impotence wonder drug that is flying off pharmacy shelves.

Companies like Pfizer have drugs at every stage of the drug development process – research, testing, producing and distributing – a process that can take literally years and millions of dollars to complete

In a sense, a multinational drug company such as Pfizer is almost like buying a health care mutual fund. You get a share in all sorts of different drugs used to treat a great variety of illnesses and conditions.

If you have new money to invest with when markets are in over-drive, consider focusing on undervalued sectors.

Health Care Pick Number Two

Our second pick in the health care world is Johnson and Johnson – known for many top-selling health care products like Johnson & Johnson’s baby shampoo. We’re suggesting it for a number of reasons.

  • Like Pfizer, it’s one of the world’s largest pharmaceutical and biotechnology companies.
  • Like Pfizer, it operates worldwide
  • Like Pfizer, it’s been around for decades and has a good and standing track record for growing sales.

Many global companies are dual listed, meaning their shares are listed on their home stock exchange as well as a major U.S. exchange.

Now, go and purchase $5000 worth of Johnson & Johnson shares. Johnson & Johnson’s stock symbol is JNJ and it trades on the New York Stock Exchange.

We’ve now added two health-care companies to your portfolio and are half way through building your portfolio.

Please Note: This is just an illustration example. We are not suggesting you to buy or invest in Pfizer shares.

Let’s take a moment and review what you’ve learnt in Module 3 before we move onward to the financial sector.

Key Learning Points

  • It is often a good idea to hold health care stocks in a diversified portfolio.
  • Pharmaceutical companies are non-cyclical. The demand for health care products is relatively unaffected by whether the economy itself is thriving or ailing.
  • The safer health care stocks have common characteristics: global sales, established products, and significant spending on research & development.
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