Introduction (What Are Pharma Stocks ?)
Pharma stocks represent shares issued by publicly traded companies involved in development, production and distribution of healthcare related products. In simple words, pharma stocks are shares of pharmaceutical companies that operate within healthcare sector.
Key Features Of Pharma Stocks
* Pharma companies are highly regulated
* Companies spend heavily on research and development
* Most drugs are protected by patent
* Stock prices are influenced by regulations and policies
Pros Of Investing In Pharma Stocks
The main advantages or benefits of pharma stocks can be pointed out as follows:
1. High Dividend Potential
Large pharma companies offer attractive dividend for shareholders. So, pharma stocks are suitable for those investors who focus on regular income.
2. Stable Demand
Demand for medication is inelastic because people always need medicines and treatments. So, pharma stocks are good investment option that provide a reliable revenue.
3. Long-Term Growth Potential
Pharmaceutical industry has long-term growth potential because of innovation and new treatments. Aging global population and rise of chronic diseases also fuel pharma sector expansion.
4. Portfolio Diversification
Investors can diversify their portfolio by adding pharma stocks that helps to reduce portfolio risk because of the dependence on single sector.
5. Recession Resistant
People needs treatments and medicines during economic slowdown also because it is a basic necessity. So, pharma stocks holders can earn good profit even in economic slowdown.
Cons Of Investing In Pharma Stocks
The major disadvantages or drawbacks of pharmaceutical stocks can be pointed out as follows;
1. Political And Regulatory Risk
One of the main drawbacks of investing in pharma stocks is that changes in the government policies, political instability, changes in law etc. can negatively impact the performance of the company that may decrease the prices of stocks.
2. High Initial Investment And Research And Development Cost
It requires huge initial investment to establish pharmaceutical company. It also requires high costs and time to make new drugs and treatments.
3. Patent Expiration Risk
Generic competitors can enter the market at lower price when patents expire that may lead to huge revenue declines.
4. Reputation Risk
It is very difficult for the pharma companies to maintain their image and reputation. They should focus on safety concerns and ethics to maintain their goodwill and reputation.
5. Volatility
Small-cap pharma stocks are more volatile than large-cap stocks because their prices may swing very quickly due to small incidents or news.
