Should you invest in big pharma because of the pandemic?

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The COVID-19 pandemic has had an enormous impact on all parts of our lives. This outbreak has changed the way that people interact and has drastically slowed the economy. Due to this, many are hoping for the outbreak to end as soon as possible. One industry that continues to focus on finding a cure or vaccine is the pharmaceutical industry. Due to this, there are plenty of opportunities,  although there are several risks that should be considered when you look into investing in big pharma.

Pharma Typically Provides Strong Returns

One factor that you should think about when considering any investment is the typical return compared to the market. Overall, the pharmaceutical industry has continued to provide higher than market returns than the overall stock market. While the COVID-19 outbreak is bound to influence this one way or another, the historical returns are promising.

Variety of Blue Chip Stocks and Index Funds

Another advantage of investing in the pharmaceutical industry is that there are a range of blue-chip stocks and other funds you can choose from. Big pharma continues to be led by a variety of major firms including AbbVie, Johnson & Johnson, and Pfizer. These companies earn billions of dollars per year in revenue and EBITDA. This means that even if they are not a leader with a COVID-19 vaccine, they still offer strong potential for good returns. If you are looking to invest in the industry as a whole, you could also consider the S&P Pharmaceuticals ETF, which trades under the XPH ticker symbol.

Risk in Individual Pharma Companies

During the COVID-19 pandemic, there continues to be a lot of interest when it comes to investing in pharmaceutical companies. However, investors need to be aware of the amount of risk that comes with investing in these companies. While some smaller pharma companies offer a considerable amount of potential if they succeed in developing a vaccine, there are risks as well. To bring a vaccine to market, there are many steps in the process, which will cost a lot of money. Unless the company has ample financial backing, you should be wary as a company may not have the working capital needed to develop a drug.

Consider Standard Investment Principles

When looking to invest, you need to make sure that you continue to consider the standard investment principles that come with any company. Investing in a company that is rumored to be developing a vaccine does come with risk. However, if you invest in a company that has a history of developing new drugs, has a strong balance sheet, and pays out a regular dividend, you could benefit based on normal investment principles. It is also important to remember how the industry could change in the future. Due to the pandemic, there is likely to be more support for the pharma industry in years to come, which could benefit it overall.

Overall, it remains important that you are diligent when it comes to investment and strategy. There continues to be a lot of opportunity for those that invest in the pharmaceutical industry. Similar to any other investment, you should focus on diversification and risk mitigation. This will help you to earn strong investment returns while minimizing risk as much as possible.

Author Bio: Patrick Bailey is a professional writer mainly in the fields of mental health, addiction, and living in recovery. He attempts to stay on top of the latest news in the addiction and the mental health world and enjoy writing about these topics to break the stigma associated with them. 

Sources:

https://www.fool.com/investing/stock-market/market-sectors/healthcare/pharmaceutical-stocks/

https://economictimes.indiatimes.com/markets/expert-view/expect-pharma-stocks-to-give-15-compounding-returns-over-medium-to-long-term-aditya-khemani/articleshow/77107221.cms

https://www.thesimpledollarcom/investing/stocks/should-you-invest-in-vaccine-companies/

https://www.fool.com/investing/2020/10/04/should-you-buy-biotech-or-big-pharma-in-the-covid/

https://www.kiplinger.com/slideshow/investing/t052-s001-10-health-pharmaceutical-companies-coronavirus/index.html