Why hospital stocks haven't done as well as expected
With health-related concerns being brought to the forefront during the Covid-19 pandemic, investors could reasonably expect healthcare stocks to be performing well. However, I would like to highlight that not all healthcare stocks are doing well and it is important to select the right area of healthcare. In the chart below, SGX-listed hospital/clinic stocks have had an anaemic performance relative to expectations; most are trading flat or below their prices at the start of the year. In this post, I will address the initial expectations of outperformance and then explain why such stocks have failed to live up to expectations.
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| Performance of hospital stocks (Source: Yahoo Finance) |
Hospital or clinic related stocks are stocks that operate/own hospitals and typically benefit from a higher patient load or utilisation of their healthcare services. Demand for healthcare services tends to be inelastic and relatively recession-proof as the need to cure illness is usually not something patients can or would stinge on.
Falling short of expectations because...
1. Fewer people falling sick
As the world goes into lockdown (and Singapore into Circuit Breaker) and the majority of people stay home, the chances of catching an illness also go down. This is the intended effect of such a measure but it also has the side effect of lowering demand for healthcare services as people don't fall sick as often.
2. Self-medication
A message that is constantly being pushed onto people is the need for better hygiene and to be more health-conscious during this period. This leads to people staying away from clinics/hospitals unless absolutely necessary. For minor ailments, most would typically be able to self-medicate at home. With many workplaces closed, the need for an MC (and hence a visit to the doctors) is also greatly reduced.
3. Deferral of less urgent services
On 6 April, the Ministry of Health in Singapore issued guidance that all non-essential medical services should be deferred in line with the Circuit Breaker in Singapore. Additionally, services suitable for teleconsultation should be delivered remotely. This was aimed at focusing healthcare resources towards combating the spread of Covid-19.
4. The dearth of medical tourists
Similarly, in end Mar, the MOH sent out a memo to practitioners to immediately stop of defer accepting foreign patients who do not reside in Singapore. Current foreign patients were also advised to continue seeking medical treatment in their home countries. This move greatly cut off medical tourism, which forms a sizable portion of private hospital revenues.
On the flip side, non-hospital/clinic-related healthcare stocks have done well. In particular glove makers like Riverstone and UG Healthcare have almost doubled since a year ago. This is because of a confluence of factors that I would be addressing in my next post so stay tuned!
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| Performance of other healthcare stocks (Source: Yahoo Finance) |
1 comments
Hospitals' major profits are from elective surgeries & ongoing followups for chronic conditions of rich (or well insured) patients.
ReplyDeleteTreating covid-19 cases (& other infectious diseases) are low margin activities & often at-cost in these times as national service expectations by people & govts.
[Almost no medical doctor will specialise in infectious diseases or public health,coz .... cannot earn lah]
This has been the same experience in US, which has a large number of private hospitals and private-public setups.
Medical consumables & devices tend to be more stable. Spikes like PPEs & ventilators tend to be blips.
Pharmas of course are much more volatile, esp small caps riding on 1 or 2 r&d drugs, and without existing portfolio of in-patent profitable drugs.
You also have diagnostics, labs & testing services. Nursing homes & care services. Etc.
Healthcare is very broad & diverse, with old school activities as well as bleeding edge (no pun intended) innovations.