The market is perched near the all-time high while economic and political uncertainty is rising. Fortunately, health care stocks are ideally suited for just such an environment.
The S&P 500 is up over 14% YTD after posting two consecutive 20%-plus return years in 2023 and 2024. There are good reasons for the strong market. We are in a Fed rate-cutting cycle. The economy is nowhere near recession. And the artificial intelligence catalyst continues to power the market’s largest sector higher.
At the same time, trade and tariff tensions with China are escalating. The government shutdown is already the third-longest in history, with no end in sight. And there is a high degree of uncertainty regarding the economy. It needs to be strong enough to power corporate earnings but weak enough for the Fed to continue cutting rates.
The current situation calls for stocks that can participate if the market continues to rise but can also thrive if the market hits a rough patch. The ideal choice is health care.
While the overall market is expensive, the health care sector is not. In fact, it was the worst-performing sector of the eleven S&P 500 stock sectors year-to-date until a couple of weeks ago and is still the second-worst-performing sector over the past year. But these stocks offer both defense and growth, and a recent catalyst may have ignited the sector to make up for lost time in the months ahead.
Health care stocks have a long history as a stabilizer during periods of economic and political uncertainty, with a record of outperformance in rough markets. It’s the ultimate defensive industry, as people get sick and take medicine regardless of the state of the market or the economy. But it has also become a growth industry as the population is older than ever before and continues to get older at warp speed.
The fastest-growing segment of the population is 65 and older, as an average of 10,000 baby boomers continue to turn 65 every single day. Health care spending now comprises more than 20% of GDP, and the number is sure to grow. Of course, health care had all that going for it over the past year while stocks floundered. What’s different now?
Health care stocks had been held back by uncertainty regarding tariff and pricing issues. The Trump administration had promised to target drug imports for tariffs, and many major drug companies manufacture overseas. The administration also pushed “most favored nation” pricing that would align U.S. drug prices with much cheaper overseas prices. Without clarity on these issues, most health care stocks were unable to generate sustainable upside traction.
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But that clarity has finally arrived. At the beginning of this month, President Trump announced 100% tariffs on imported drugs. However, the policy provided an exemption for companies investing in the U.S. Many companies were already doing this, and others simply planned to invest. Later, Pfizer Inc. (PFE) announced a deal with the administration regarding pricing.
Pfizer committed to lowering prices on several medications in the U.S., particularly for state Medicaid programs and through a new federal website, www.TrumpRx.gov. The Pfizer deal lowers prices on drugs for far fewer customers than previously anticipated, and it is likely that other drug companies can make similar arrangements. Following the tariff and Pfizer announcements, the health care sector had the strongest weekly rally in more than 20 years.
Health care stocks are cheap and an ideal choice amid the current high prices and growing uncertainty. The issues that were holding back the stocks appear to have been resolved. The better stocks should make up for lost time in the current environment. Here are two of the best.
2 Health Care Stocks to Buy Now
AbbVie Inc. (ABBV)
Yield: 2.9%
AbbVie is a U.S.-based biopharmaceutical company formed in 2013 as a spinoff from Abbott Laboratories (ABT). AbbVie is a research-based pharmaceutical company that specializes in small-molecule drugs. It’s a cutting-edge company with strong exposure to high-demand needs in immunology and oncology, and it has a terrific pipeline.
AbbVie became an industry giant because of its mega-blockbuster drug Humira. It’s an autoimmune medication that became the world’s bestselling drug with annual sales of over $20 billion. But the tremendous success of that drug became a problem as Humira lost its patent overseas a few years ago, and it lost its U.S. patent in 2023.
Because of shrinking Humira sales, AbbVie posted lower year-over-year revenues in 2023 and the first half of 2024. But the company turned that corner. AbbVie has long planned for this eventuality and has done a stellar job launching new drugs capable of replacing the diminishing Humira revenue.
Humira accounted for 75% of revenue a few years ago. But new immunology drugs Skyrizi and Rinvoq together now have sales that already replace peak Humira revenues. In the most recent quarter, the two drugs had combined revenue of $6.5 billion, on pace to best the best Humira year. AbbVie has also guided for the two drugs to bring in $31 billion in 2027 and $40 billion by 2029.
While those drugs are killing it, AbbVie also has a robust pipeline of new drugs in the hopper, including important cutting-edge indications in the areas of blood cancer and Parkinson’s. In fact, there are currently 20 drugs in phase III, the final phase before approval. AbbVie also currently has over 50 drugs in earlier phases.
AbbVie returned to profitability in 2024. The earnings report showed AbbVie has replaced the Humira revenue and is well on track for strong earnings growth in the years ahead. The patent cliff had been holding the stock back, but that’s gone now. And the company has guided for 21% revenue growth in 2025. It is also expected to grow earnings 23% over the next year.
Eli Lilly and Company (LLY)
Yield: 0.71%
Eli Lilly and Co. (LLY) is a pharmaceutical giant that has delivered staggering returns. Look at the performance of LLY versus the overall market in various periods over the last ten years (with dividends reinvested).
| | 3 Years | 5 Years | 10 Years |
| Eli Lilly (LLY) | 150% | 495% | 1093% |
| S&P 500 | 88% | 108% | 287% |
The returns are only that low because the stock has had a tough year. Over the past one-year period, LLY has returned -11% while the S&P was up over 13%. But the stock has suffered an occasional lackluster year periodically through the past ten years.
Indiana-based Eli Lilly is a global pharmaceutical company with over $53 billion in annual revenue, 41,000 employees, and sales in 110 countries. Founded in 1876, Lilly is noteworthy for its unusually high focus on research and development (R&D), where it allocates well over 20% of sales compared to an average of high teens for the industry.
The R&D focus pays off, as Lilly has arguably the very best pipeline and lineup of recently launched drugs in the industry. Lilly currently has three drugs under FDA review, 28 in phase III, and 52 drugs in earlier phases. Breast cancer drug Verzenio is a potential multi-billion-dollar blockbuster. The primary focus is on neuroscience, cardiometabolic, cancer, and immunology.
The recent catalyst for the stock has been mega-blockbuster weight-loss drugs. Weight-loss drugs are the hottest thing in the industry now because of the massive potential market where 30% of the population is obese and there is a huge runway for growth. Its new weight-loss drug Zepbound and diabetes drug Mounjaro are killing it. Plus, Alzheimer’s disease drug donanemab also has mega-blockbuster potential.
In the second quarter, Zepbound and Mounjaro generated a staggering $8.5 billion for just the quarter. The company reported revenue growth of 38% for the quarter and EPS growth of 92%. Lilly is guiding for full-year 2025 revenue growth of 36% and earnings per share growth of 92% at the midpoints.
It has a weight-loss drug in late-stage trials that is taken orally. The current drugs on the market require an injection. It could be a game-changer in the white-hot weight-loss drug arena. Drugs taken orally are more desirable and cheaper to manufacture. The weight-loss drug market is expected to reach $130 billion by 2030. The first oral drug could give Lilly a huge further boost in this massive market.
LLY has sputtered somewhat over the past year. Some of that is consolidation after the huge recent price spikes. But it is likely also because of uncertainty regarding pricing and tariff issues that are being resolved. The massive expected earnings growth over the next several years justifies continuing high stock returns.
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