Health Care Stocks Have Sagged. Can You Bet on a Recovery?

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Boston Scientific
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abstract green curve chart on grey background going up and down like a heart monitor

Investors' fever for artificial intelligence stocks left other areas of the market looking sickly by comparison. One was health care, which was decidedly out of favor as 2025 began. A larger-than-normal amount of regulatory uncertainty weighed down pharmaceutical companies, insurers and most of the other players in the multitrillion-dollar U.S. health ecosystem.

As the AI fever broke and some of those regulatory concerns settled, health care stocks got healthier, if not fully robust.

"Valuations are still below historical levels," as the sector's recovery is in its early days, says Mike Perrone, a specialist in health care at investment firm Baird. In the meantime, investors are getting more comfortable that the firms are managing the risks of changing health care policies, he says.

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The beginning of 2025, in the early months of the Trump administration, was marked by discomfort. The president's rhetoric on prescription-drug prices inspired fear among pharmaceutical companies, because their profits would be deeply damaged if the U.S. were to mandate European-style pricing for prescriptions.

It was also unclear how the new leadership of the Food and Drug Administration (FDA) would run the drug-approval process and whether new medicines could easily make it to market. Huge budget cuts at the National Institutes of Health threatened research programs that are major customers for medical supplies and tools. And the Trump tariff policy threatened health care firms that import or export.

As the year closed, however, most of the companies' worst nightmares hadn't come true. The major turning point was the "most-favored-nation" deal on pricing that the federal government struck with pharmaceutical giant Pfizer (PFE) in September. The deal exempted the firm from tariffs while reducing drug costs for Medicare and state health plans. The government made deals with more pharma companies after that.

"Investors viewed those deals to be pretty industry-friendly overall, relative to some of the fears that were out there," says Westfield Capital Management's Matt Renna, who manages the Harbor Health Care exchange-traded fund.

Health care stocks are on the mend

The change in mood was reflected in the State Street Health Care Select Sector SPDR ETF (XLV), a fund that jumped 5.6% in the first two days after the Pfizer announcement and is up 12% since September 29, the day before the Pfizer announcement.

Another bullish sign: The December initial public offering of equipment company Medline (MDLN) raised more than $6 billion, making it one of the biggest debuts of the past decade. The shares then jumped 40% on their first day of trading.

But the health care sector as a whole remains below its historical valuation, says Eddie Yoon, the health care sector lead at Fidelity Investments and the manager of the Fidelity Select Health Care fund, a member of the Kiplinger 25, the list of our favorite actively managed no-load mutual funds. Some health care subsectors are pricier than others, he says.

Health care providers — think companies that own hospitals — and equipment distributors are closer to the upper end of their historical valuation ranges. Health insurance companies are near the lower end, because profits have been dinged by costs that rose faster than the companies could increase their premiums.

Biotech stocks have been strong performers, in part because investors see a wave of mergers-and-acquisitions activity coming. The strength in biotech has helped pull up the stocks of companies in the life-sciences tools sector, many of which had stumbled post-pandemic, Yoon says.

Within that varied landscape, we found a handful of health care stocks that are poised for gains as the sector overall recovers its health. Prices, yields and other data are as of December 31, unless otherwise stated.

Boston Scientific

Boston Scientific (BSX) makes devices that treat gastrointestinal and urological conditions, but it's the cardiology business that's at the heart of its growth story.

The company's Watchman has long been a leading product for what's called left atrial appendage closure, a procedure that blocks blood clots and minimizes the risk of strokes. BSX's products also serve the market for cardiac ablation, in which a catheter uses heat or cold to create scars and treat arrhythmia.

Now, the company's Farapulse product is a leader in a new technique: pulsed-field ablation, which works faster and causes less damage to the heart than conventional ablation.

The firm's cardiology division, which accounts for about two-thirds of its sales, posted a sales gain of 22% in the quarter that ended September 30. All told, Boston Scientific's top line rose by more than 20%, to $5.1 billion, with profits up about 60%.

Those are impressive results considering the firm's tough competition: Medtronic (MDT) — another pioneer in pulsed-field ablation — Stryker (SYK), Johnson & Johnson (JNJ) and Abbott Laboratories (ABT) are all jockeying to sell their wares to medical providers.

Nonetheless, analyst Joshua Jennings of investment firm TD Cowen says Boston Scientific is his top recommendation for 2026 and "the most attractive growth story in the medical devices sector."

He believes the company can continue to report double-digit sales and earnings growth while expanding profit margins. Farapulse and Watchman "should remain needle-moving product drivers" in 2026, says Jennings, who sees the shares increasing 21% over the next 12 months.

The stock trades at 29 times estimated earnings for the next 12 months, which is slightly above the average of 25 for the S&P 500's health care equipment and supplies industry, according to S&P Global Market Intelligence.

CVS Health

Outside of a CVS Pharmacy at night with store sign lit up in red

A former CEO of CVS Health (CVS) said the drugstore chain's name stood for "convenience, value and service." Investors have had trouble looking beyond the firm's 9,000-odd retail locations, but they're beginning to see that the company has a three-part business that can deliver on the motto.

In addition to those stores, CVS owns Aetna, a giant of the health insurance industry, and CVS Caremark, a company that manages pharmacy benefits for insurers. CVS added a chain of private medical clinics in 2023 with hopes of integrating the services into its retail chain.

Fitting those businesses together, CEO David Joyner said at an investor day in December 2025, means that a customer of both Aetna and Caremark who walks into a CVS store should get better health outcomes at a lower cost than if they'd gone elsewhere.

The combination of complementary businesses is a differentiator from the deeply distressed Walgreens, which saw its share price crumble before going private in 2025. Rite Aid was in worse shape, and it went out of business completely in 2025.

But CVS paid up for its acquisitions, and the company has had challenges putting everything together. Aetna had been a problem spot, with profit margins below its peers, but the insurer began to reverse that in 2025.

"We're betting on a turnaround," says Daniel Matviyenko, a managing director of Jennison, an investment division of PGIM, and manager of the PGIM Jennison Health Sciences Fund.

The fund started buying CVS shares in early 2025 and continued adding to its stake, making CVS a top-10 position as of mid-December. "We do think this promise of integrated health care is finally here, and CVS is leading the charge."

Investors are getting on board. CVS stock gained 84% in 2025 — but the shares are still cheap, at 12 times estimated earnings. For now, the V in CVS still stands for value.

Danaher

Danaher logo on a tablet with purple and teal bar charts in the background

(Image credit: Igor Golovnov/SOPA Images/LightRocket via Getty Images)

Danaher (DHR), a Washington, D.C.-based company, saw its business boom in the pandemic after its Cepheid subsidiary developed the first point-of-care test for COVID-19 to receive emergency-use authorization from the U.S. government. Per-share profits nearly doubled, to $9.66, from 2020 to 2022, and the stock price doubled as well.

Although COVID isn't gone, the world's attention has waned, and Danaher has retreated from its peaks. The stock is down about 30% from its pandemic highs. Danaher defenders say investors can now see the post-COVID prospects for the maker of diagnostic tools and devices — and they should like what they see.

Danaher has long been acquisitive, snapping up companies to take advantage of growing areas in health care, and selling off subsidiaries that no longer fit.

Analyst Sel Hardy, of research firm CFRA, says Danaher's portfolio "transformation" created a focused company that can accelerate its revenue growth rates and improve its profit margins. Hardy has a Buy rating on the stock and sees it hitting $258 in 12 months, implying a gain of 13% from its recent close.

Analyst Sidharth Sahoo, of investment firm HSBC, says Danaher management has set conservative sales-growth forecasts in the low single digits for 2026 that are appropriate, given the struggle of the company — and the entire life-sciences tools industry — to hit targets post-COVID. Sahoo sees the shares reaching $255 in the next 12 months.

But if the firm hits 6% sales growth (the high end of its forecast), Sahoo can see profit margins expanding, too, pushing earnings growth into double digits and sending shares close to $300.

Zoetis

A veterinarian in a white coat holds a kitten and a puppy.

Fighting like cats and dogs could soon become a thing of the past: Many pets are already on anti-anxiety medication, as their owners boost what they spend to keep their companion animals healthy and happy.

Zoetis (ZTS) is the biggest provider of the products that do it. Spun off from pharmaceutical giant Pfizer more than a decade ago, Zoetis is all animal. It sells nearly $10 billion worth of drugs for pets and livestock annually.

There are advantages to not making medicines for humans. There are no huge government insurance programs pushing for drug-cost cuts, so Zoetis has more pricing power than conventional pharmaceutical companies. And the drug-approval process for animals is faster than for humans, so Zoetis can bring its big sellers to market relatively quickly.

And the company says its pipeline of drugs is promising. Zoetis executives told investors in December it believes it has 12 "blockbuster" products — defined as $100 million or more in annual sales — in the works, including one debut per year from 2026 to 2029. The lineup includes treatments for chronic kidney disease, which Zoetis says is the number-one disease in cats and dogs yet has no products addressing it in the market today.

Zoetis shares went on sale in November after the company tweaked its 2025 revenue forecast (while leaving its profit targets intact). The shares fell 14% on the news, and the market seems to be waiting for the company's final 2025 earnings report before getting back in.

This has created a rare opportunity. Shares trade at 19 times earnings — a level Zoetis hasn't seen since 2014. A 6% hike in the dividend, announced in December, has pushed the stock's yield to 1.7%.

Navann Ty, an analyst for investment firm BNP Paribas, is one of Wall Street's bulls. Zoetis minimizes costs with efficient research-and-development processes, he says, and it's the best innovator among animal-drug companies.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

David Milstead joined Kiplinger Personal Finance as senior associate editor in May 2025 after 15 years writing for Canada's Globe and Mail. He's been a business journalist since 1994 and previously worked at the Rocky Mountain News in Denver, the Wall Street Journal, and at publications in Ohio and his native South Carolina. He's a graduate of Oberlin College.