The pharmaceutical companies, biotechnology companies, medical equipment companies, and healthcare service organizations.
High thresholds for time and capital costs, patent protection, significant product differentiation and economic size.
Large pharmaceutical companies have a strong competitive advantage, and their return on capital can often be as high as 20-30%. Developing new drugs is time consuming, costly, and unsuccessful. Look for companies that have long-term patent protection and that there are many new drugs under development that can spread the risk of development. Successful pharmaceutical companies have high gross profit margins, few debts, and abundant cash flow. They generally have the following characteristics:
a. Best-selling drugs.
b. A complete drug clinical trial system.
c. Strong marketing capabilities; Great market potential.
Unless you have a deep understanding of this technology, don't invest in the start-up phase of biotech companies. The profitability of such companies may be huge, but so far their cash flow is unpredictable, in which case the loss of the light is more likely than the big money. Characteristics of successful biotechnology companies:
a. The company has a large number of drugs into the final stage of clinical trials.
b. Sufficient funds.
c. Mature sales channels.
d. Stock prices have a safety margin of 30-50%.
Do not ignore the health care equipment industry. There are many companies in this industry that have competitive advantages, such as economies of scale, high conversion costs, long-term clinical history, patent protection, and pricing power. The characteristics of successful medical equipment companies:
a. The penetration ability of sales personnel.
b. Product diversification.
c. Product innovation.
These companies usually do not have a strong competitive advantage. Diversified risk management medical organizations, whether through highly mixed fee-based businesses, product diversification, strong underwriting, or government accounts with minimal risk, will provide a profit that will sustain a certain growth rate.
The cost of developing new drugs is high, the cycle is long, and there is no guarantee of success. Patent expiration will face the risk of imitation, which may lead to the loss of the company's sustainable competitive advantage. In addition, the risks faced by the medical insurance industry include single product risk, litigation risk, and price risk caused by political pressure.
High profitability, low risk, strong free cash flow and high return on capital are typical defensive cyclical industries. The healthcare industry is the star of Wall Street for the past 50 years and has a glorious history. Medical equipment companies have to be more stable than agnostic biotech companies. At the same time of high profitability, it is necessary to pay attention to policy pressures and some legal risks.