The stock of Fortune 500 companies is a key driver of economic growth, but as the stock market has climbed over the past year, it’s become increasingly risky to invest in companies that have recently become more popular with investors.
The trend is especially apparent in healthcare, a sector where the share of companies valued at $1.6 trillion has risen to a record $5.1 trillion in 2020, according to a report released by the nonprofit Institute for Supply Management (ISM) in March.
At the same time, the sector has seen a surge in its share of the overall value of companies, which has grown to about 10 percent of total assets.
“This increase in share value has increased the relative value of healthcare stocks,” said Paul Zeller, IMS chief economist.
“As a result, a large portion of the industry is now in a position to benefit from the new growth.”
While there is plenty of room for improvement in healthcare stocks, a new analysis by the IMS suggests that investors should be focused on those companies that are poised to grow in the future.
While healthcare stocks have enjoyed some impressive gains over the last year, they’re not immune from the risks associated with the new stock market.
For instance, as the number of medical supplies companies has increased, so has their share price, which in turn has led to the emergence of companies that compete with them, said Zeller.
In addition, investors should consider the impact that new medical technology could have on the industry, especially given the large number of healthcare organizations that have merged with each other.
To that end, Zeller said, it is important to keep an eye on the health care industry’s growth and risk profile in the coming years, especially as the market continues to rally.
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