Are Healthcare Stocks Still a Good Investment in 2025?

Healthcare stocks have been long hailed as a defensive, long-term “buy and hold” staple. Over the decades, the sector was there for investors in both good times and bad. A safe haven during downturns. A source of steady earnings growth and predictable dividends.

Fast forward to 2025, and investors are reevaluating this thesis. After several years of market leadership, healthcare has been thrown on the defensive in 2025.

Cost headwinds. Policy uncertainty. Investor rotation into high-flying tech.

The stocks are getting hammered.

Widely respected bellwethers like UnitedHealth (UNH) and Novo Nordisk (NVO) have shed more than 20% of their market value so far this year.

Is this an early cycle flush? Or has the healthcare bull market already run its course?

Let’s dig into the sector’s recent performance, structural outlook, and investment implications in more detail.

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What’s Going on with Healthcare in 2025? A Challenging Year for Big Caps

The numbers speak for themselves: Healthcare is underperforming.

UnitedHealth (UNH) stock is down sharply from 2024 highs. While the company remains a highly profitable giant with huge vertical integration through its care delivery and pharmacy services subsidiary, Optum, investors are fretting higher medical utilization and cost pressures.

Novo Nordisk (NVO) was the growth king of healthcare, riding soaring sales of its GLP-1 diabetic and weight-loss medicines (Ozempic, Wegovy, etc.). But it’s also been dragged down with the sector since the beginning of the year as pricing, competition, and macro pressures surface.

Below, the S&P 500 Healthcare Index is way behind the broad market in 2025.

What’s going on?

Cost and Margin Compression

Healthcare providers and companies are being squeezed from all angles: Wage inflation. R&D. Supply chain. Investors are concerned about the profitability of payers like UnitedHealth and physicians like UnitedHealth as they try to hold the line on medical costs (rising faster than they can raise premiums).

Election-Year Uncertainty

Politics as usual in Washington, D.C. with healthcare reform back on the agenda in 2025. Investors are skittish about regulatory risks ahead of the 2025 midterms as policy makers target drug pricing and Medicare/Medicaid reimbursement models.

Theme Rotation Into AI/Discretionary/Tech

It’s been a wild year for tech, as stocks like Nvidia, Microsoft, and the Magnificent 7 go on tear after tear. That attention has drawn capital away from “boring” areas like healthcare and consumer staples, leaving some high-quality stocks behind in the dust.

UnitedHealth (UNH): A Pillar of the Sector Takes a Hit

Few companies are more widely admired than UnitedHealth. The largest private health insurer in the U.S., it’s also got strong vertical integration through Optum, its pharmacy services and care delivery businesses.

That said, in 2025 UNH stock has been getting hammered, down more than 20% from its highs:

Higher-than-expected claims from medical utilization (aka medical care ratio).
Regulatory scrutiny on billing practices for Medicare Advantage.
Slower growth in membership (employer-sponsored plans are plateauing).

Still, UNH is a fundamentally strong company, generates billions of dollars in free cash flow each year, pays a reliable dividend, and sports a wide economic moat. It may be re-rated for now, but the long-term value is clear to us.

Investor takeaway: This is a good chance to buy a best-in-class compounder at a discount. UNH at $450 or lower feels like a buy opportunity for the long-term investor.

Novo Nordisk (NVO): Hero to… Meme Stock?

Novo Nordisk’s incredible run over 2022-2024 was fueled by the global obsession over GLP-1 treatments for obesity and diabetes. The company had near-unlimited pricing power as blockbuster drugs like Ozempic and Wegovy saw revenue growth skyrocketing by triple-digit percentages each year. At its peak, NVO stock was Europe’s most valuable listed company.

Fast forward to 2025, and things are cooling down:

FDA approvals and generics for competing “next-generation” drugs like Eli Lilly’s Mounjaro.
Price pushback from governments and insurers for weight-loss drugs.
Capacity constraints on manufacturing weigh on growth.

Despite the near-term challenges, Novo still has massive pricing power, strong brand recognition, and new markets (especially in Asia) to target as it continues to dominate obesity and diabetes treatment. It’s a large cap with a smaller cap’s growth trajectory.

Investor takeaway: Obese people are not going to suddenly stop being obese. Short-term pain can create long-term entry points.

Other Key 2026 Healthcare Themes

Biotech: A Mixed Bag

The big pharma and healthcare names are getting killed in 2025. Meanwhile, biotech has become a bit of a wild card. But with higher risk comes potentially higher reward, especially in subsectors like CRISPR, oncology, and mRNA tech. A few picks we’re watching: Vertex Pharmaceuticals, Recursion Pharmaceuticals, and Moderna.

Demographics Drive Long-Term Demand

The baby boomers aren’t getting any younger, and the global population is rapidly aging. In the U.S., over 10,000 citizens a day hit the magic age of 65 in 2025. This is a massive secular driver of demand for:

Chronic disease management.
Long-term care.
Prescription drugs.
Medical devices.

It’s a one-way, long-term growth tailwind that investors should keep in mind.

New Drug Discovery with AI

Companies are increasingly using artificial intelligence and machine learning algorithms to speed up drug discovery and precision medicine pipelines. AI-driven biotechs like Recursion Pharmaceuticals and Schrödinger are teaming up with deep-pocketed tech giants (Microsoft, AWS) to speed up everything from molecule screening to clinical trials.

Should You Still Buy Healthcare Stocks in 2026?

Short-Term Outlook: The Sky Is Falling

The factors outlined above (cost inflation, regulatory uncertainty, etc.) may persist into 2026 and keep sentiment low. Thematic flows into disruptive tech stocks could keep healthcare on the sidelines for a while.

Valuations are coming down to Earth. Some of them, anyway.

Long-Term Outlook: The Sector Remains Intact

Aging demographics will continue to drive demand over the coming decades.

Cyclical innovation should drive margin expansion.

International and emerging markets growth will underpin growth.

Over the long term, the healthcare sector has a track record of generating solid returns. Let’s look at the data.

Timeframe	Healthcare Sector Annual Return
Past 10 Years	~11.2% CAGR
Past 20 Years	~10.3% CAGR
Past 30 Years	~12.4% CAGR

(Source: Morningstar, S&P Sector Data)

Smart Healthcare Investment Strategies for 2026

Diversify with Buckets

Separate your exposure into:

A few blue-chip core names: UNH, JNJ, NVO, LLY
A handful of biotech names for high risk/high reward growth (VRTX, REGN, CRSP, AMGN, etc.)
ETFs: XLV, IBB, etc. Or an actively managed healthcare fund.

Don’t Chase “The Dip”

In a falling market, it’s tempting to jump in with both feet and chase prices lower. But be selective. Look for companies with strong balance sheets and consistent earnings growth. High moat, low price-to-earnings ratio, high price-to-book value (P/BV) ratio, and free cash flow yields above the sector average.

Stay Patient

Healthcare stocks are defensive growth plays. They probably won’t lead the market when tech is on fire, but should outperform during market corrections. If you’re a long-term investor and trader with a mixed bag of high-fliers, it could make sense to trim them and take some profits to rotate into undervalued healthcare.

Summary: The Bear May Be Right, but Healthcare is a Long-Term Buy

It’s been a painful year for healthcare stocks so far. Investor uncertainty around costs, policy risk, and macroeconomics have re-rated the sector dramatically.

If we were to ask the naysayers: “Is healthcare stock a good investment in 2026?”, they’d probably say no.

But if we zoomed out and took a look at the big picture, we’d see a very different story.

Headlines are loud. The short-term investing world can often be noisier. But beneath the surface, healthcare is just grinding away:

Innovating and integrating with digital health and AI technologies.
Expanding internationally into high-growth markets.
Compounding earnings, quarter after quarter.
Healthcare isn’t down and out yet.

Despite the bears, we remain healthcare bulls for the long-term investor…

Disclosure: The opinions expressed in this article are solely those of the author and should not be construed as a recommendation to buy or sell securities.

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Are Healthcare Stocks Still a Good Investment in 2025?

What’s Going on with Healthcare in 2025? A Challenging Year for Big Caps