Last year was tough for many healthcare companies. Big names like UnitedHealth Group and Elevance Health faced losses, causing the healthcare sector to lag behind the overall market.
It wasn’t always this way. For three years prior, gains were modest—just 2.6% in 2024, 2.1% in 2023, and a dip of 2.0% in 2022. However, there’s been a noticeable shift recently. Over the last six months, the healthcare sector has surged ahead, recording nearly a 19% increase, proving its resilience even in challenging times.
Investors and experts believe this trend will keep going. The healthcare landscape is transforming, particularly due to the rise of weight-loss drugs and attractive stock valuations, which make healthcare investments appealing.
Weight-Loss Drugs Drive Change
Weight-loss treatments like GLP-1 agonists, including Novo Nordisk’s Ozempic and Wegovy, are gaining popularity. There’s a move towards these being available in pill form, making them more accessible. Catherine Brown from Welldo highlights that these treatments might soon be as everyday as banking apps on our phones.
According to a report by Grand View Research, the market for GLP-1 drugs could explode, growing at an annual rate of 18.54% from 2024 to 2030. The global value of this market is projected to jump from $13.84 billion to $48.84 billion. That’s a huge leap and a sign of the medication’s increasing mainstream acceptance.
Valuation Advantages Attract Investors
Healthcare stock valuations have dipped, especially compared to tech giants. For example, Pfizer’s price-to-earnings (P/E) ratio stands at 14.7, while tech companies like Palantir boast staggering P/E ratios of over 400. This keeps healthcare stocks attractive to investors looking for value, particularly as tech stocks show more volatility.
For context, Mizuho’s healthcare strategist Jared Holz noted that when funds shift from giant tech firms, it creates opportunities in underperforming sectors like healthcare, which can attract investor interest swiftly.
A Closer Look at Vanguard’s Health Care ETF
The Vanguard Health Care ETF has rallied recently, climbing 2.3% in the current year after a significant gain over recent months. This fund holds top companies like Eli Lilly, AbbVie, and Merck, benefiting from overall sector recovery.
The ETF is cost-effective too, with an expense ratio of just 0.09%. It also offers a dividend yield of 1.58%, adding value for shareholders.
Wall Street’s analysts have a positive outlook. The ETF has a “Moderate Buy” rating, with a low short interest of just 0.33%, indicating confidence in its performance. This suggests that many believe the healthcare rebound is not only real but could continue to grow stronger.
In conclusion, the healthcare sector is on an upswing, driven by innovations in treatment and favorable valuations. This creates a promising outlook for both investors and patients navigating their health journeys.
