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What Are the Best Health Care Stocks?

Did you know that by the year 2050, estimates show that one in every six people will be over the age of 65? That’s roughly 16% of the planet’s population that will be over the age of 65. What does that mean for the stock market? It means that it might be a good time to start investing in health care stocks.

Key Takeaways

  • Health care stocks are from any business that sells medical products and services.
  • Looking for health care companies that show long-term, strong medical advantages could result in more stable gains.
  • Several health care stocks produce a positive gain now and for the forcible future.

What Are Health Care Stocks?

Image via Flickr by Ervins Strauhmanis

Health cares stocks are from any company that sells medical products and services. These include drugs and medical devices and insurance, hospitals, and health care providers. The type of medical product or service they offer determines the category for the stocks. Companies that develop biological drugs using technology fall under biotech stocks. Others that develop and sell products like drugs, medical devices, and robotic surgical systems would be under pharmaceutical stocks. Other categories include genomic, telemedicine, marijuana, health insurers, retail pharmacies, and specialty pharmacies.

Why Health Care Stocks?

In the coming decades, health care costs will continue to grow. Health care companies will be looking for ways to improve their products, keep the costs down, and provide better outcomes. This means that there will be a potential boom in new health care discoveries, making health care stocks an attractive investment. A company that is set to launch a new product that is cheaper, better, and quicker may do well for a short period but may not generate the same gains as a company that has shown stability.

When researching a health care company, look for one that has shown stability.

What Are the Best Health Care Stocks?

There are numerous health care stocks one could invest in. Investors typically research medical and health care companies, the choose one or two that seem the most promising to them. Here are 11 health care stocks that have shown strong, long-term competitiveness.

UnitedHealth Group (UNH)

UnitedHealth Group is one of the largest health care companies in the world. It has a market value of $255.2 billion. Even though UNH has had rollercoaster years, it always seems to bounce back. UNH has an average of an 8% revenue growth year-over-year. It has shown growth in all four of its revenue streams. Not only has UNH shown an operating cost profit of $14.6 billion, but it has also been able to generate cash.

In the first nine months of 2019, UNH turned 103% of its net income into free cash flow, which is the money left after the business has invested in maintaining and expanding operations.

IDEXX Laboratories (IDXX)

We all know how much everyone loves their pets. IDEXX Laboratories is an innovative company that is specializing in the care of pets. As the demand for pet care continues to grow in the U.S., the need for veterinary tools and software, tests, and imaging is growing. This Maine company is also producing products for the livestock industry. Its market value is $22.3 billion. This company has more than quintupled over the last five years, and analysts expect it to continue growing over the next five years to come.

AbbVie (ABBV)

AbbVie is a multi-billion dollar drugmaker company. ABBV makes the best-selling drug for arthritis and Crohn’s disease known as Himura. It also just sealed a deal and are now the owners of Botox. Although ABBV doesn’t have the growth opportunities as other companies, it is one to look at as it was ranked in the top 10 for best overall stocks to purchase in 2020.

Takeda Pharmaceutical

Takeda Pharmaceutical is a Japan-based company founded in 1781. This company focuses on gastroenterology, rare diseases, oncology, neuroscience, immunology, plasma-derived therapies, and vaccines. This company has a market value of $64.2 billion. Takeda recently acquired Shire Pharmaceuticals. It’s now one of the top 10 largest pharmaceuticals in the world.

CVS Health Corp. (CVS)

CVS is an $80 billion pharmacy and health plan provider. This company is more for the conservative investor; even though its dividends are not the highest, it’s very stable. The services it provides include mail-order delivery, retail sales, disease management programs, retail clinics, and pharmacy benefits management. CVS also started offering HealthHubs, which are sections in stores that feature health classes, nutrition seminars, dietitian access, and other health-focused products and services. CVS is looking to change health care by making it more accessible, cheaper than ever, and more personalized.

Intuitive Surgical

Intuitive Surgical has a market value of $65.8 billion. This company specializes in robotic surgical systems, and it launched its first da Vinci robotic surgical system in 1999. The da Vinci system is one of the most widely used robotic surgical systems in the world. This company makes more than 70% of its revenue from recurring sources, such as instrument replacements derived from the number of procedures performed. Intuitive Surgical has been one of the leading health care sectors for the last 15 years.

DaVita (DVA)

Are you a fan of Warren Buffet? He owns about 30% of DaVita. DVA is based out of Denver and is a $10 billion company. It provides kidney dialysis to patients suffering from kidney failure or end-stage renal disorders. The year-to-date return for DVA is 19.2%. Over the next five years, analysts predict DVA to have an 11% annualized rate per share.

Illumina

Illumina is the industry’s leading health care company in gene sequencing, and it has many products slated for a big surge. Insurance companies are beginning to cover noninvasive prenatal screenings. Illumina has developed the VeriSeq NIPT system, which will provide fast processing and will be able to detect double the abnormalities.

Cancer research continues to be a major area of study. TruSight Oncology 500 is a molecular test used to sequence for lung cancer introduced by Illumina in 2018. It is launching a newer version that will detect several types of cancer at very early stages using a blood test. Another growth potential is consumer genomics like Ancestry, 23andME, and Helix-Illumina’s design. This market is expanding beyond the U.S. and will also feature areas like health and nutrition.

Corcept Therapeutics (CORT)

Corcept Therapeutics is a biotech company that develops drugs for the following disorders: endocrine, metabolic, oncologic, and psychiatric. CORT has ranked high on several rating scales like Composite Rating, Relative Strength Rating, and EPS Rating.

LHC Group

Studies have shown that people would rather stay in their homes than go into long-term care facilities. LHC Group is a company that provides in-home health care. It’s now servicing 60% of the U.S. population over 65 across 35 states and the District of Columbia. This $4.1 billion company is the second largest of its kind. Over the last five years, investors have been thrilled with the 40%-plus annualized average total.

Novartis (NVS)

Novartis is a $200 billion Swiss drugmaker company. This company has 15 different drugs that produce a gross income of $1 billion per year. Two of the common drugs produced are Cosentyx (plaque psoriasis, psoriatic arthritis treatment) and Gilenya (multiple sclerosis treatment). These two drugs alone grossed more than $3 billion in 2019, making it one of the best health care stocks that year. Novartis recently introduced trial drugs for leukemia and paroxysmal nocturnal hemoglobinuria treatment, giving hope for the company to continue to increase its impressive 3.5% dividend.

Health care stocks can be a wise investment option. With the ever-changing improvements in the medical field, new drug discoveries, pet health, and medical care, health care stocks are bound to prosper.

Author:Kyle Dennis

Straight outta college Kyle Dennis taught himself to trade, and then made over $7 million in trading profits by the time he was 28 years old. Kyle reveals how to find, track, and profit from lucrative trades for exceptional profits. Thousands of traders follow him every day to learn how to target these high probability trades.

Understanding Day Trading

D ay trading can be challenging to master because it means only holding securities for a day. In addition, investors don’t want to be issued a day trade call, which means they’ve violated their margin account. They also don’t want to have their account labeled as a pattern day trader and have restrictions placed on their account. It’s essential to understand what day trading entails to avoid making any adverse actions.

Key Takeaways

  • A pattern day trader is someone who engages in four or more day trades within five business days.
  • Pattern day traders are required to have a margin account with a minimum equity requirement of $25,000.
  • Day trade buying power is how much an account can day trade without producing a day trade call.
  • A day trade call is issued when a trader violates their margin account.

What Is Day Trading?

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A day trade is an opening trade followed by a closing trade on the same security on the same day. If four or more day trades are made within five consecutive business days, the account owner will be considered a pattern day trader. The account will then be held to different requirements and rules, such as a $25,000 minimum equity requirement. When an investor buys and sells on the same business day in a margin account, their account will be labeled as a pattern day trader, and they’ll have to follow pattern day trader rules.

Day Trade Call

Investors who are issued a day trade call, occasionally referred to as daily trading call, have violated their margin account. An investor has five days to meet the call by adding cash or marginable securities into their account. After depositing the funds to meet the day trade call, the funds are placed on a two-day hold to consider if the day trade call has been met. Days are added to the hold if it takes longer for the funds to move.

Investors can’t use cross-guarantees to meet the day trade call, and some securities are not eligible either. Investors have to meet the call with cash or approved marginable securities.

Becoming a Pattern Day Trader

A pattern day trader participates in four or more day trades within five business days. The number of day trades also has to be more than 6% of their total trading activity in those five business days. Pattern day traders must meet the minimum equity requirement.

Understanding the Minimum Equity Requirement

The Financial Industry Regulatory Authority (FINRA) requires that accounts belonging to pattern day traders must maintain a day trader minimum equity requirement of $25,000. Having cash and marginable securities held within the account will allow the investor to meet this requirement. If investors fall below the $25,000 margin, a day trade minimum equity call is issued.

If an account falls below the $25,000, the investor won’t be allowed to day trade until they meet the minimum equity requirement. Investors get five business days to meet the criteria. The account is limited until it reaches two times the maintenance margin excess of daily total trading power. If the call is still not satisfied after the five days, the account will be further restricted. In this case, investors will be allowed to trade with cash only for 90 business days or until they finally meet the day trade call minimum equity requirement.

Some brokerage firms have their own rules beyond the minimum equity requirements, so pay attention to the firm’s rules. A firm also may label an account as a pattern day trader if they believe that the account will engage in pattern day trading.

An account can have the pattern day trader label withdrawn if there aren’t any day trades with the account for 60 days.

Day Trade Buying Power

Day trade buying power is the amount an investor can trade from their account in a single day without generating a day trade call. Day trade buying power is fixed and decided by the balances from the account on the previous day. Investors can’t increase their account balance by selling already-held securities. In addition, the funds required for day trading must be held in the margin account one business day before figuring out the day trade buying power. If the total profit of all day trades, in one day, surpasses the starting day trade buying power, a day trade call is issued.

How Do You Day Trade?

Follow these steps to prepare for day trading:

  1. Do your homework.Research the stocks you would like to trade and keep an eye on the market.
  2. Keep extra funds handy. You may need to trade with these additional funds or be willing to lose them. Make sure you know how much money you’re ready to risk each trade.
  3. Make sure you have the time to invest yourself fully into the trades. You’ll most likely have to give up your whole day. That’s the reason it’s called day trading. You’ll have to be ready to move fast on good opportunities throughout the day.
  4. Start small. Keep an eye on one or two stocks you’re interested in and watch them for opportunities.
  5. Learn market times. The mornings can be quite volatile with all the trades beginning at once. The end of the day can be quite chaotic, especially as people try to get last-minute trades done. The middle of the day tends to be the calmest, so for beginners, this may be the best time to trade.
  6. Make sure you keep calm. When you’re a day trader, a lot happens in a small amount of time. Keeping emotions at bay while trying to be logical is the best course of action. Have a plan of action and stick to it.
  7. Maintain good relations with your brokerage firm. Know and understand your brokerage firm’s equity level requirements. All firms will have the initial requirements, but some will also have conditions that are unique to their firm. Some require investors to hold more than the minimum equity requirements set in place by FINRA.

Real-World Examples of Daily Trading Calls

To better understand the process of day trading and possible outcomes, look at a few of these examples.

Example One: Day Trade Call

You buy and hold a security in MNO stock overnight, using most of your intraday buying power. You sell your shares of MNO the next business day, which gains you more margin buying power. You use the profit from the sale of MNO to buy shares of QRS stock.

Your firm allows the trade based on the assumption that you will hold your shares of the QRS stock overnight. However, the QRS stock drops during the day, and you sell your shares. Since you used margin buying power and not day trading power, your brokerage firm will issue a day trade call.

Example two: Day Trade Margin Call on Your Account

You begin the day with $1,000 in margin equity, and your day trade buying power is also $1,000.

  • You make your first trade at 11 a.m.
    • You buy 50 ABC at $55 for a total cost of $2,750.
  • You make your second trade at noon.
    • You sell all your ABC (50) stock at $56 and increase your buying power to $3,050.
  • Your third trade you make at 12:30 p.m.
    • You buy 100 shares of CCC at $29 for a total cost of $2,900.
  • Your last trade of the day takes place at 2 p.m. You sell your shares of CCC at the same price you bought them at $29.
  • While neither buys exceeded your day trade buying power, you still have to add all the day-trade requirements. When you add $2,750 to $2,900, you get $5,650. Now you have to subtract your day trade buying power from your total. $5,650 – $1,500 equals $4,150. The $4,150 surpasses your starting day trade buying power and will have your brokerage firm issuing a day trade margin call to your account.

D ay trading calls can be an exciting way to invest in the stock market, but day traders need to be well-versed in the stock market and the nuances specific to day trading. Investors who are just starting may want to learn more about day trading until they’ve gained more experience. If you decide to day trade, make a plan and stick to it.

Author:Kyle Dennis

Straight outta college Kyle Dennis taught himself to trade, and then made over $7 million in trading profits by the time he was 28 years old. Kyle reveals how to find, track, and profit from lucrative trades for exceptional profits. Thousands of traders follow him every day to learn how to target these high probability trades.

Backtesting Stocks: How to Test Your Strategy

W hen you’re developing strategies for trading stocks, you want to know if your systems will play out well in the real market before you risk tons of cash. Backtesting stocks provides a way to assess your strategies against historical data.

Key Takeaways:

  • Backtesting stocks can test if a trading strategy or system is viable by seeing how the strategy would have played out with historical data.
  • Backtesting can filter out price action noise and emotion to give you signals to follow when you’re trading.
  • You need to stay away from several biased actions to make sure your backtest gives you accurate and useful results.
  • If backtesting works, it can give you the confidence to employ the strategy in real markets going forward.

What Does Backtesting Stocks Mean?

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If you can quantify a trading idea, you can also backtest your idea. Backtesting is a method to see how well a model or strategy would have performed. If you develop a strategy for trading stock, you can put it to the test with backtesting. Backtesting allows you to see how your trading strategy would have performed in the past using historical data. Using certain investment criteria, you can backtest to simulate what happened in the past.

You don’t have to wait for years to see how well a strategy might perform thanks to backtesting. It allows you to test out your hypotheses and pinpoint profitable strategies.

All in all, backtesting lets you use historical data to simulate a trading strategy and generate results. You can then analyze the risk of the strategy as well as the strategy’s profitability before you risk any real capital. It can be a key step to optimizing your trading strategy.

If you conduct a backtest well, you’ll gain valuable information about a planned strategy. A backtest that leads to positive results can assure you that your strategy is fundamentally sound and likely to get you profits if you implement the strategy in reality. On the other hand, if your backtest yields suboptimal results, you’ll know you need to alter or completely reject the strategy you just tested.

Benefits of Backtesting Stocks

A backtest tries to use mechanical and repeatable signals to find entry and exit signals. Ideally, these signals lead to bigger wins coupled with small losses over the long term. You do this by cutting losses short while letting winners run.

A trading system needs to have signals to filter out price action noise that can lead to overtrading. Effective signals show the meaningful moments when it comes to price actions.

Not only does trading with backtested signals filter out too much price action noise, but it also lets you trade while filtering out emotion. When you try to decide what to do with each trade from your own perspective, you inevitably bring in your emotions. By backtesting and then using systems you’ve proven to be effective, you instead follow a systematic process. You can ignore your feelings and simply follow signals after you’ve successfully backtested your strategies.

What Do You Need When You’re Backtesting Stocks?

If backtesting works, it can give you the confidence you need to employ your strategy going forward. But how do you go about backtesting stocks?

Make sure you execute any backtest over a long enough period of time that you can really see how the strategy performs in the market. You’ll want to see how your system plays out during everything from uptrends to downtrends to range-bound markets. By making sure you use a long enough period to see all of this, you’ll get more meaningful results from your test.

An ideal scenario when backtesting includes the following aspects:

  • Sample data: A backtest requires sample data from a relevant time period. The duration the data comes from should reflect a variety of market conditions. This allows you to better judge if positive market conditions. This allows you to better judge if positive backtest results really represent sound trading or if the results were just a fluke due to the specific data chosen.
  • Sample stocks: The historical data set used for a backtest should include a truly representative sample of stocks. That means including companies that eventually were sold, liquidated, or went bankrupt. If you use data only from historical stocks that still currently exist, you’ll end up getting artificially high returns from your backtest.
  • Trading costs: A good backtest will take all trading costs, even those you think are not significant, into consideration. Even small costs can add up over the period of the backtest, and those costs may significantly affect how a strategy’s profitability appears. You’ll want to make sure any software you use accounts for all trading costs.
  • Correlation with other tests: You can gain further confirmation about the effectiveness of your strategy by doing forward performance testing along with backtesting. If you see good correlation between test results from various testing methods, you can better understand how your strategy will perform before risking real cash. Good correlation can give further insight into the viability of your trading system.

You’ll also need to make sure you don’t fall into some common traps of backtesting. When you’re backtesting, you must:

  • Test strategies in good faith: You’ll need to carefully avoid bias as much as you possibly can to get meaningful results from backtesting. You should develop any strategy without using the data you’re going to use in your backtesting. Because traders typically develop strategies using historical data, that can be more difficult than it would seem to stick to. You have to be strict and test your system with different data sets than the data sets you use to train the models, or the backtest will end up producing great but completely meaningless results.
  • Avoid data dredging: Data dredging means you test a wide range of hypothetical strategies against one data set that will produce success that fails in real markets. Don’t do that. There are tons of strategies out there that can beat the market by chance over a specific time period.
  • Compensate for biased tendencies: For better or worse, human nature means certain biases. You can compensate for the tendency to cherry-pick or data dredge by using a strategy that succeeds in your relevant (known as in-sample) time period. Then, backtest the strategy on data from a different (or out-of-sample) period of time. If you get similar results from both in-sample and out-of-sample backtests, you can generally assume the results are likely valid.

Backtesting Stocks vs. Other Tests

Backtesting is a useful tool when developing new trading strategies, but it isn’t the only tool you have at your disposal. You can use more than one strategy to get a broader picture of how you can expect your strategies to perform.

Other testing possibilities include:

Paper Trading

Paper trading, or forward performance testing, gives you another set of out-of-sample data that you can use to evaluate your system. Paper trading is just a simulation of actual trading. It involves following the logic of a system in a live market. All trades are only executed on paper, hence the name paper trading. In other words, you’ll document the entries and exits of all trades as well as any profits or losses your system generates, but you will not execute any actual trades.

Forward performance testing requires you to exactly follow the logic of the system. If you don’t do that, you will not be able to accurately evaluate the process. You’ll need to stay honest about entries and exits and stay away from behavior such as cherry-picking trades.

If you don’t include a trade on paper because you rationalize that you would never have taken the trade, you end up skewing the results of the forward performance testing. You should make sure to document and evaluate any trade that would occur following your system’s logic to get an accurate result of how the system performs.

Scenario Analysis

Backtesting uses real historical data to test how a trading system would have performed. Scenario analysis, on the other hand, uses hypothetical data to simulate various possible outcomes.

Scenario analysis can simulate things like particular changes in the value of the securities in a portfolio. Scenario analysis can also look at what would happen should a key factor occur, like a change in interest rate.

You might use scenario analysis to estimate how your portfolio’s value would change when responding to an unfavorable event. You could also use it to analyze a worst-case scenario in theory.

Software and Websites for Backtesting Stocks

Stock backtesting websites and software let you check your trading strategy and see how effective it is. Software can provide a detailed report that includes risks, reward, winning percentage, drawdown, and more. Some programs to try include:

  • Interactive Brokers’ Portfolio Manager.
  • Portfolio123.
  • MetaStock’s Backtesting Software.
  • MetaTrader 5 Strategy Testing.
  • QuantBlocks.
  • Quantopian.
  • Quantshare.
  • Tradestation.
  • Tradingview.
  • The TrendSpider.

I f you’re looking for a way to test your strategies before using them on the market, backtesting offers a way to do it. Backtesting stocks will give you a sense of your strategy’s viability on the market, giving you the confidence you need to use it in the real world for success.

Author:Kyle Dennis

Straight outta college Kyle Dennis taught himself to trade, and then made over $7 million in trading profits by the time he was 28 years old. Kyle reveals how to find, track, and profit from lucrative trades for exceptional profits. Thousands of traders follow him every day to learn how to target these high probability trades.