In this choppy stock market, amid flash-in-the-pan IPOs from cloud stocks and social media companies, it sometimes seems like you can never get ahead unless you’re constantly moving on to the next big thing.
But while a small group of traders and speculators manage to make a bundle chasing the latest hot rumor, there are plenty of stories about investors losing their shirts, too.
A much safer and more reliable strategy is to rely on durable long-term trends based on demographics, policy trends and secular shifts in consumer and business behaviors.
Take healthcare stocks. I personally have been bullish for ages on the healthcare sector (such as here, here and here) because of the big-picture trends behind the industry. A short list of these influences include:
- Aging America needs more care: According to the Administration on Aging, the population of Americans older than 65 in 1999 was 35.3 million. That increased 12.5% in 10 years to 39.6 million in 2009. And by 2020, that age group should hit 55 million. Older Americans simply need more medical devices, drugs and treatment — meaning a big tailwind for healthcare in the years ahead.
- Obamacare unlocks “customers.” Say what you want about the Affordable Care Act, also known as “Obamacare,” but the bottom line is that 10.3 million uninsured Americans now have coverage. Those are a whole lot more “customers” for the healthcare industry as a result.
- Emerging markets untapped: According to the World Bank, the developed world typically spends upwards of 10% of its GDP on healthcare. The U.S. spent 17.9% of its GDP on healthcare in 2012, the most recent data available, while the U.K. spent 9.4%, Germany spent 11.3% and France spent 11.7%. Meanwhile, emerging markets spend next to nothing on healthcare. China spent a paltry 5.4%, India spent 4.0% and many nations in Africa spent less than 3%. As nations develop, they spend more on necessities like infrastructure and healthcare first — and that means growth for healthcare companies abroad.
There are other reasons, including the fact that healthcare spending is largely recession-proof as patients prioritize drugs or medical care over other discretionary expenses. But the bottom line is that healthcare has a lot more going for it than just a hot rumor on Wall Street.
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How to Play the Healthcare Megatrend
My favorite ways to play this trend include:
- The SPDR S&P500 Biotech ETF (XBI), to play a wide swath of small up-and-coming drug stocks developing the next generation of treatments for conditions like Alzheimer’s and cancer.
- Diversified healthcare megacaps like Johnson & Johnson (JNJ), with their fingers in a lot of pies — including over-the-counter drugs.
- Generic drugmakers like Teva (TEVA) and Mylan (MYL) to provide reliable sales without the risk of patent expirations.
- Medical technology stocks including robotic surgery company Intuitive Surgical (ISRG) and medical device giant Medtronic (MDT) that makes everything from traditional catheters to high-tech lasers to be used in place of scalpels.
This kind of no-nonsense investing admittedly isn’t sexy, because catheters and ibuprofen don’t have the same “wow!” factor as cloud computing or 3D printing.
But the demographics, policy initiatives and long-term trends are a huge tailwind behind healthcare stocks that will result in big performance over the long term.
Other Megatrends to Watch
If you find the prospect of long-term, big-picture investing appealing vs. the churn and burn of high-stakes trading, there are a host of other megatrends out there like the healthcare boom that you can ride.
Charles Lewis Sizemore, chief investment officer of the investment firm Sizemore Capital Managementand editor of the advisory service Macro Trend Investor, has dedicated his career to helping individual investors find superior investments backed by powerful macro trends.
The big ideas he’s watching right now include:
- The rise of Africa as the “new China”
- The dramatic shift in sources of oil and energy for the global economy
- The stunning resurgence of the EU as the world’s largest economy
- And the global sports frenzy and competition among billionaires for sports franchises
To learn more about the numbers behind these macro trends — and to get Charles’ specific trades to capitalize on the momentum — check out Macro Trend Investor.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.
