The outbreak of the coronavirus, officially named COVID-19, finally broke the stock market. On Monday, the Dow Jones Industrial Average plunged over 1,000 points.
It has also put the health care sector in the spotlight.
Companies are racing to develop a vaccine against the new virus. Others are testing drugs that help patients fight the virus.
And stock speculation has been rampant among the potential winners.
Guessing the right one is like holding a winning lottery ticket. But it is just like the lottery … a gamble. You’re more likely to lose than to win. And that’s no way to invest.
Take Inovio Pharmaceuticals Inc. (Nasdaq: INO). The stock shot up 78% in less than one month because of its work developing a coronavirus vaccine.
Since then, shares have fallen 25% … so far.
Bottom line: Don’t get caught up in the emotional response triggered by greed and fear. There’s a better way.
The Surest Path to Profits
Last week, I highlighted the enormous opportunity in small-cap stocks. Strong earnings growth is creating cheap valuations compared to large caps.
I also mentioned that I would reveal a key sector driving this growth.
And that sector is small-cap health care.
No, I don’t expect a boost to short-term profits from the current crisis. After all, biotech only makes up 17% of the small-cap health care sector.
I’m focused on the big picture.
The U.S. population is aging. The 65-and-older age group is the fastest-growing population segment. See the chart below:
By 2030, 71 million Americans — or 20% of the population — will be retirement age. And this group spends the most in the $4 trillion health care industry.
Earnings in the small-cap health care sector are already expected to soar 288% this year. That’s because the small-cap sector is a big supplier of equipment and services to the health care channel.
You can tap into this growth opportunity with the Invesco S&P SmallCap Health Care ETF (Nasdaq: PSCH). This exchange-traded fund (ETF) holds small-cap health care stocks in a variety of industries, including products, facilities and services.
Research Analyst, The Bauman Letter