United States Healthcare Stocks Layout Guide: Finding the Next Growth Engine

Amid the backdrop of global aging populations, continuous innovation in new drugs, and the booming development of telemedicine, healthcare biotech stocks have become the darling of many investors. Compared to the electronics industry, which is more susceptible to economic cycles, the healthcare sector possesses unique defensive characteristics—regardless of economic fluctuations, the demand for health services and pharmaceuticals remains almost unchanged.

So, in the current complex global economic environment, how should one invest in healthcare stocks? Which targets are worth paying attention to?

Why Do Healthcare Biotech Stocks Always Become Hot Stocks?

The US biopharmaceutical market is enormous. According to market forecasts, it will reach $445 billion by 2027, with a CAGR( of 8.5%. The rapid expansion of this market creates many opportunities for investors.

The core reason is: The value of healthcare stocks comes from future imagination space. Traditional financial indicators (such as profitability and cash flow) are often of limited reference for biotech companies in R&D stages. The real assets of these companies are their drug pipelines under development. Once these drugs pass clinical trials and gain FDA approval, their stock prices often experience explosive growth.

A typical example is Taiwan’s PharmaEngine. In 2022, a year of stock market decline, its stock price doubled, mainly driven by its drug receiving orphan drug designation in the US. Although EPS in the first half of 2022 was still negative at -2.93 NT dollars, this did not stop investors from chasing. By October 2023, the company completed its third phase clinical trial enrollment globally, and by the quarterly financial report announced in May 2024, the stock price had surged to a high of 388 NT dollars. This fully demonstrates that investors value the company’s future profit potential, and these potential revenues are largely unaffected by economic cycles.

How to Assess the True Value of Healthcare Stocks?

Investing in healthcare stocks requires understanding the industry’s unique logic.

First, it’s important to understand the concept of “blockbusters”—drugs with annual sales exceeding $1 billion. Successful large pharmaceutical companies do not just sit back and count money because a blockbuster drug sells well; instead, they reinvest 50-60% of revenue into R&D to develop the next generation of products. This results in short-term operating margins that may not seem particularly outstanding, but large investment institutions tend to raise their valuation and target prices for these companies because of their continuous innovation pipelines.

Why? Because this indicates the company has a steady stream of innovative products. This logic also explains why TSMC can maintain a higher P/E ratio than competitors—because it continuously invests in advanced process technology, whereas UMC adopts a more conservative strategy, which inevitably affects long-term potential valuation.

Second, since many R&D-stage drugs are not yet profitable, investment institutions often use PSR (Price-to-Sales Ratio) instead of traditional P/E ratios to evaluate biotech companies. This valuation method better reflects the company’s actual value.

Finally, whether Taiwanese or American companies, the market’s most concern is FDA approval. The FDA has the world’s strictest pharmaceutical regulatory standards. Once a drug is approved by the FDA, its approval process in other countries is often significantly accelerated.

The Dual Nature of Healthcare Biotech Stocks

High risk and high volatility are the labels of this field. Clinical trial results, competitor movements, regulatory policy changes, patent disputes—any of these factors can cause sharp shocks to stock prices. Investors need sufficient mental resilience and risk tolerance.

Deep government and insurance involvement is another characteristic. The healthcare industry is highly regulated by governments, with corresponding policies in each country. Developed nations generally have comprehensive insurance systems (such as Taiwan’s National Health Insurance), which strictly regulate drug prices and medical services, making market operations more complex.

Frequent new events drive stock prices. During the COVID-19 pandemic in 2020, vaccine developers’ stocks surged; the Fed’s QE policies also boosted the entire tech sector; but as economic storms arrived, many high-valuation companies’ stocks were halved, ironically, biotech stocks without profits continued to rise. Behind this is the complex change in market sentiment and capital flows.

Why Does the US Dominate Global Healthcare Investment?

The US healthcare market has unique competitive advantages.

First is the market size and capitalization features. The US is the world’s largest healthcare market with a high degree of marketization. Unlike some countries where low drug prices due to national health insurance disincentivize companies from offering the latest drugs, the US allows drug manufacturers to set higher prices, with insurance companies bearing the costs, providing ample commercial incentives for innovation.

Second is talent concentration and a complete ecosystem. Nearly one million professionals work in biotech and pharmaceuticals in the US, covering R&D, manufacturing, sales, and other upstream and downstream fields. The high salaries and development prospects attract top talent worldwide, and related science graduates also enjoy excellent employment opportunities. The capital market actively invests in this industry, forming a virtuous cycle.

This ecosystem formation makes the US recognized by global investors as the best environment for pharmaceutical industry development.

US Healthcare Stock Investment Map

The US healthcare market is divided into four major sectors: Pharmaceuticals, Biotechnology, Medical Devices, and Healthcare Services.

Lilly)LLY( — Leading Pharmaceutical Company

In 2024, Lilly’s market cap reached $842.05 billion, ranking 10th globally, and becoming the largest pharmaceutical company by market value. Its drugs’ largest market is North America, accounting for about 60% of revenue. Its weight-loss drug line is expected to continue growing in the coming years, making it a key target to watch.

Pfizer)PFE( — Dual Engine of Vaccines and Drugs

The success of COVID-19 vaccines and oral medications has driven the company’s market performance. Whenever the US market pulls back, it’s a good opportunity for long-term investors to enter.

Johnson & Johnson)JNJ( — Steady Cash Cow

Stock price grows steadily, providing generous dividends, with relatively small volatility. Very suitable for dollar-cost averaging or long-term buy-and-hold strategies, and regarded as the king of biotech stocks. Due to its long-term upward trend and gentle fluctuations, it’s also suitable for margin trading.

AbbVie)ABBV( — Patent Fortress

Mainly engaged in immunology, oncology, and virology drugs. The company’s primary revenue comes from Humira, approved by the FDA in 2002, used to treat rheumatoid arthritis. Although patents will expire, AbbVie holds hundreds of related patents, making it difficult for competitors to break through. The company has agreements with big players like Pfizer and Amgen to collect royalties after patent expiry. It continues investing in R&D to find the next blockbuster drug, making it a good entry point during dips.

Merck)MRK( — Oncology Leader

With a long history dating back to German pharmacies, its key product Keytruda is used for cancer treatment and is one of the best-selling drugs worldwide. The stock price has steadily risen, and it offers substantial dividends. Market corrections also present long-term investment opportunities.

UnitedHealth)UNH( — Healthcare Service Integrator

Benefiting from the aging US population and increasing healthcare demand, its revenue and profit continue to grow. The long-term upward trend of its stock price is clear, and it also offers good dividend returns.

All of these companies are leading targets in the US healthcare market, with strong competitiveness, innovation capability, solid financial performance and cash flow, and substantial investment returns.

Current Situation of Taiwanese Healthcare Stocks

Sino Biopharmaceutical)1720( — Traditional Pharmaceutical Company

Diversified operations in Western medicine, health supplements, medical devices, etc. Revenue has grown slowly in recent years, assets steadily increased, and debt ratios remained stable. Due to stable dividends, it enjoys a certain popularity among Taiwanese stock savers.

KangKang Biotech)1783( — Diversified Business Layout

Engaged in biopharmaceuticals, medical devices, skincare products, and more. Its fundamentals have been stable in recent years, with healthy asset-liability ratios, long-term low debt levels, and worth attention.

Investment Advice from a Global Perspective

Taiwan’s overall capital market still mainly focuses on electronics stocks, and even high-quality biotech companies are unlikely to see the multi-tenfold gains seen in the US. As coexistence with the pandemic becomes the new normal, Taiwanese investors’ understanding of biotech stocks may gradually improve, but at present, the US remains the best investment market for pharmaceuticals.

US pharmaceutical stocks are larger in scale, more innovative, and more competitive, making it easier to find quality investment targets. In contrast, the Asian pharmaceutical market is still developing and improving; even excellent companies’ stock performance and overall strength are not comparable to their US counterparts. This reflects differences in capital markets, as well as technological gaps and investor professionalism.

Investing in healthcare stocks requires professional knowledge of the entire industry. If you are interested in this field, it is recommended to keep an eye on US pharmaceutical developments. Globally, US healthcare stocks are undoubtedly the most worth paying attention to investment targets today.