*This is not financial advice. All content should be considered opinionated. We are not responsible for any of your gains and losses. I am neither a licensed nor registered financial expert. Please see a financial advisor before making investment decisions.

*This is not financial advice. All content should be considered opinionated. We are not responsible for any of your gains and losses. I am neither a licensed nor registered financial expert. Please see a financial advisor before making investment decisions.

In the world of the stock market, there are two opinions: it's exciting or it's boring. For the companies that are exciting, usually, they're smaller and less established. The bigger and more established companies usually are boring to talk about.

When it comes to investing in the healthcare sector, specifically in pharmaceuticals or biotech, that's where most of the players gain excite and a few players don't. Because there are few players that are established (like Biogen or Alexion Pharma), they're usually seen as boring and low risk/low reward.

Comparing the pipelines of the smaller and bigger biotech firms, the bigger companies usually have bigger pipelines and that reduces the risk of investing in them. Plus, because they are already generating revenue from existing products, they become attractive growth stocks and even dividend stocks. Gilead Sciences is one example of a pharmaceutical/biotech company that is also a great dividend stock.

For the years that I've been investing in the healthcare sector, I found that the bigger companies have a much higher success rate with their drug trials than the smaller companies. The reason being is that they have larger R&D budgets and that is usually spent on clinical research companies, or companies that research the product and analyze its efficacy before clinical trials. Since they can afford to spend a lot on resources like that and on many top scientists, big healthcare companies like Johnson & Johnson and Bristol Myers Squibb have tons of success with clinical trials. Overall, they look like they have a much easier time getting drugs approved than most biotech firms.

Also, another way that many of these healthcare companies grow is by acquiring smaller biotech firms and utilizing their patents to create more drugs, gain royalties off of other companies that are using the technology, and even bring in talented people from that company into their company.

Furthermore, many big pharma companies make partnerships with smaller biotech firms. In those deals, either the big pharma company funds the research in exchange for a percentage of revenue, the big pharma company will handle commercialization and pay the biotech firm royalties, or the big pharma company will pay royalties to the biotech firm in exchange for access to their technology.

What makes partnerships great is that they give investors a signal that the drug/technology might successfully pass clinical trials. The chances that a company succeeds in clinical trials if they partnered with a bigger healthcare firm is higher than if they didn't partner with another healthcare firm.

Overall, the big players in the healthcare sector look to be compounders as their huge resources and high success rates in clinical trials will continue to give these firms fortunes in the long run. Whenever I see a big pharmaceutical/biotech firm trading at a lower valuation, I usually would like to take a position in them for the long term. That way, I get to not only capitalize on their current successes (that investors are undervaluing) but also get to profit from their continued success.