The healthcare sector is one of the largest and most complex corners of the stock market. It accounts for roughly 18% of US GDP — about $5.3 trillion in 2024 — and spans everything from hospital chains and insurance companies to pharmaceutical giants and AI-driven diagnostics firms. But investing in healthcare stocks comes with unique challenges, including regulatory risk, patent cliffs and political uncertainty that can move share prices sharply.
What are healthcare stocks?
Healthcare stocks belong to the healthcare sector of the stock market — one of 11 sectors defined by the Global Industry Classification Standard. Companies within the healthcare sector provide medical services, develop drugs, manufacture equipment, underwrite health insurance and build the technology platforms that support all of the above.
The healthcare sector can be divided into several major subsectors:
Pharmaceuticals and biotech. Companies that research, develop and sell prescription drugs. This includes large-cap pharma firms like Eli Lilly and Novo Nordisk as well as smaller biotech companies focused on a single therapeutic area or drug candidate.
Health insurance and managed care. Companies that provide and underwrite health insurance plans, including Medicare Advantage, Medicaid managed care and employer-sponsored coverage. Major names include UnitedHealth Group, Elevance Health and Cigna.
Medical devices and equipment. Firms that design and manufacture everything from surgical robots and imaging systems to insulin pumps and orthopedic implants.
Healthcare facilities. Hospital operators, outpatient clinics, laboratories and nursing home chains.
Healthcare technology. A growing subsector that includes electronic health records, telehealth platforms, AI-driven diagnostics and data analytics companies serving the healthcare industry.
How to invest in the healthcare sector
There are two main ways to invest in healthcare: individual stocks or exchange-traded funds (ETFs). Individual stocks offer targeted exposure to specific companies and subsectors, while ETFs provide diversified access to the broader healthcare theme with less single-stock risk.
Before you can invest, you’ll need a brokerage account. Here’s how the process works:
Pick a platform. Online brokerages are plentiful, so conduct your own research to find the platform best suited to your investment goals.
Open an account. If you opt for a web-based brokerage account, you can complete the application process online.
Fund your account. Before you can purchase securities, fund your account with an external transfer.
Select your securities. Search for stocks and ETFs by sector using your platform’s research tools.
Place an order. Once you’ve found a security you’d like to purchase, indicate how many you’d like to buy and submit your order.
Monitor your investments. Log in to your brokerage account to track your investments.
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The healthcare sector is broad. The table below highlights companies across key subsectors that investors are watching in 2026, from large-cap pharma and insurance to medical devices and biotech.
The largest US health insurer by revenue. Shares have lost roughly half their value since late 2024 amid DOJ criminal and civil investigations into Medicare Advantage billing practices, the fatal shooting of its UnitedHealthcare CEO in December 2024 and leadership changes.
Maker of the da Vinci surgical robot, the global leader in robotic-assisted minimally invasive surgery with over 9 million procedures performed. Also developing the Ion system for lung biopsies.
Eli Lilly
LLY
Pharmaceuticals
Maker of Mounjaro and Zepbound (tirzepatide), a dual GIP/GLP-1 agonist for diabetes and obesity. Also has a strong Alzheimer’s pipeline with donanemab.
Novo Nordisk
NVO
Pharmaceuticals
The Danish pharma behind Ozempic and Wegovy (semaglutide). Trades as an ADR on the NYSE. Its GLP-1 franchise generates the majority of its revenue.
Dominates the cystic fibrosis treatment market and co-developed Casgevy, the first approved CRISPR-based gene therapy. Expanding into pain and kidney disease.
One of the world’s largest medical device companies, covering cardiovascular, neuroscience, surgical and diabetes technologies across more than 150 countries.
Additional healthcare stocks to research
Beyond the companies above, several other publicly traded firms have significant healthcare exposure:
Elevance Health (ELV). Formerly known as Anthem, this is the largest Blue Cross Blue Shield licensee in the US. Rebranded in June 2022.
Humana (HUM). A major Medicare Advantage insurer that also operates CenterWell primary care clinics and home health services.
Abbott Laboratories (ABT). Diversified healthcare company known for the FreeStyle Libre continuous glucose monitoring system, diagnostics and nutritional products.
Danaher (DHR). A life sciences and diagnostics conglomerate with brands including Beckman Coulter, Cepheid and Leica Microsystems.
Tempus AI (TEM). An AI-native healthcare company that uses machine learning to analyze clinical and molecular data for precision medicine. Went public in 2024.
Align Technology (ALGN). Maker of Invisalign clear aligners and iTero intraoral scanners, sitting at the intersection of healthcare and consumer technology.
Healthcare ETFs
If you’d prefer diversified exposure rather than picking individual stocks, several ETFs cover the healthcare sector. They range from broad sector funds to narrower subsector plays focused on biotech, medical devices or genomics.
Health Care Select Sector SPDR Fund (XLV). The largest healthcare sector ETF, tracking the S&P 500’s healthcare companies. Heavily weighted toward large-cap pharma and managed care.
Vanguard Health Care ETF (VHT). A broad healthcare fund with over 400 holdings, offering wider exposure than XLV at a low expense ratio.
iShares Nasdaq Biotechnology ETF (IBB). Tracks Nasdaq-listed biotech companies, providing targeted exposure to drug development and genomic medicine.
SPDR S&P Biotech ETF (XBI). An equal-weighted biotech ETF that gives smaller-cap biotech companies as much influence as large-cap names, offering a different risk profile from IBB.
iShares U.S. Medical Devices ETF (IHI). Focused on medical device and equipment makers like Intuitive Surgical, Abbott and Medtronic.
ARK Genomic Revolution ETF (ARKG). An actively managed fund targeting companies in gene editing, CRISPR, molecular diagnostics and agricultural biology.
Fidelity MSCI Health Care Index ETF (FHLC). A low-cost alternative to XLV with broader market-cap coverage.
iShares U.S. Healthcare ETF (IYH). Another broad healthcare fund that includes large- and mid-cap companies from the Dow Jones US Health Care Index.
VanEck Biotech ETF (BBH). A concentrated biotech fund holding 25 of the largest US-listed biotech companies.
Why invest in healthcare stocks?
Healthcare is a human necessity, which gives the sector structural demand characteristics that most other industries lack. People need medical care regardless of whether the economy is booming or in recession, making healthcare stocks a potential source of defensive stability in a portfolio.
Several forces are driving growth in the sector beyond baseline demand. An aging global population is increasing the need for chronic disease management, hospital services and prescription drugs. The GLP-1 drug revolution is creating an entirely new multi-billion-dollar market in obesity treatment. And AI-powered diagnostics and precision medicine are opening up new therapeutic possibilities that didn’t exist five years ago.
Healthcare stocks also offer a range of investment profiles. Dividend-paying large-cap names like Johnson & Johnson and Gilead Sciences can serve as income-generating holdings, while high-growth biotech companies offer the potential for outsized returns if a key drug candidate succeeds in clinical trials.
The GLP-1 revolution
No discussion of healthcare investing in 2026 is complete without addressing GLP-1 receptor agonists — the class of drugs that includes Ozempic, Wegovy, Mounjaro and Zepbound. Originally developed to treat type 2 diabetes, these drugs have become some of the best-selling pharmaceuticals in history thanks to their effectiveness for weight loss.
The numbers are striking. The global GLP-1 market was valued at roughly $53 billion in 2024 and Goldman Sachs Research projects the anti-obesity medication market alone could reach $95 billion by 2030. J.P. Morgan estimates that approximately 25 million Americans could be on GLP-1 treatment by 2030, up from around 6 million in 2024.
For investors, the GLP-1 boom has reshaped the pharmaceutical landscape. Novo Nordisk (maker of Ozempic and Wegovy) and Eli Lilly (maker of Mounjaro and Zepbound) have become two of the most valuable pharmaceutical companies in the world. But the opportunity extends beyond the drug makers themselves — contract manufacturers, specialty pharmacies and medical device companies serving GLP-1 patients are all benefiting from the trend.
The risks are real too. Patent cliffs loom for first-generation GLP-1 drugs, over 60 companies are developing competing products and insurance coverage for obesity treatment remains inconsistent. Investors should be prepared for significant competition and pricing pressure as the market matures.
AI and digital health
Artificial intelligence is increasingly reshaping how drugs are discovered, diseases are diagnosed and patients are treated. AI-driven drug discovery platforms can screen millions of molecular compounds in a fraction of the time traditional methods require, potentially cutting years and billions of dollars from the development process.
In diagnostics, AI systems are already being used to interpret medical imaging, flag early-stage cancers and predict patient outcomes. Companies building these tools range from pure-play AI firms like Tempus AI (TEM) to technology divisions within established medical device companies like Medtronic and Intuitive Surgical.
For investors, AI in healthcare represents a long-term growth theme, but one that is still largely in its early stages. Many AI healthcare companies are pre-profit, and the regulatory pathway for AI-powered medical tools is still evolving.
Risks of investing in healthcare stocks
Healthcare stocks carry several sector-specific risks that investors should weigh carefully.
Regulatory and political risk. Government policy has an outsized impact on healthcare companies. The Inflation Reduction Act (signed August 2022) introduced Medicare drug price negotiation for the first time, directly affecting revenue projections for pharmaceutical companies. Changes to the Affordable Care Act, Medicare Advantage reimbursement rates and FDA approval standards can all move share prices sharply.
Patent cliffs and drug pricing pressure. Pharmaceutical companies face a constant cycle of patent expirations that expose blockbuster drugs to generic and biosimilar competition. When a major patent expires, revenue from that drug can drop steeply. Investors should pay close attention to when a company’s key drugs lose exclusivity.
Clinical trial failures. Biotech and pharmaceutical companies invest billions in drug development with no guarantee of success. A single failed clinical trial can wipe out a significant portion of a company’s market value overnight, particularly for smaller biotech firms with limited pipelines.
Managed care headwinds. Health insurance companies face rising medical costs, government scrutiny of prior authorization practices and the risk of regulatory changes to Medicare Advantage. UnitedHealth Group’s ongoing DOJ investigation into its Medicare billing practices illustrates how regulatory exposure can affect even the sector’s largest companies.
Complexity. The healthcare sector is technically demanding. Understanding a biotech company’s drug pipeline, a medical device company’s regulatory pathway or a health insurer’s actuarial assumptions requires specialized knowledge that many generalist investors may lack.
Bottom line
The healthcare sector offers a combination of defensive demand and structural growth that few other sectors can match. But its complexity, regulatory exposure and the high stakes of drug development make it a sector where research matters more than most. Whether you’re drawn to the GLP-1 revolution, medical device innovation or the stability of large-cap managed care, compare platform options before you open an account.
Frequently asked questions
Some do. Large-cap names like Johnson & Johnson, AbbVie, Gilead Sciences and Medtronic pay regular dividends. Health insurers like UnitedHealth Group and Elevance Health also pay dividends. However, many biotech companies reinvest all earnings into R&D rather than paying dividends, so income-focused investors may need to be selective within the sector.
Traditional pharmaceutical companies like Pfizer and Novartis tend to have diversified drug portfolios, stable revenue and established manufacturing. Biotech companies like Vertex and Regeneron are more focused on novel biological therapies and often carry higher risk because a larger share of their value depends on pipeline drugs that haven't yet reached market. The line between the two has blurred as large pharma companies increasingly acquire biotech firms for their drug candidates.
An FDA approval can send a biotech or pharmaceutical stock sharply higher, especially if the drug addresses a large patient population or an unmet medical need. Conversely, a rejection or a request for additional clinical data can cause a steep selloff. For medical device companies, FDA clearances and De Novo classifications serve a similar function. Investors in clinical-stage biotech should monitor FDA calendar dates closely.
The Inflation Reduction Act (signed August 2022) gave Medicare the power to negotiate prices on certain high-cost drugs for the first time. It also capped insulin copays at $35 per month for Medicare beneficiaries and set a $2,000 annual out-of-pocket spending limit for Part D prescription drugs. These provisions directly affect the revenue outlook for pharmaceutical companies with large Medicare exposure, though the first round of negotiated prices covers only a limited number of drugs.
Several companies have changed names or been acquired. Alexion Pharmaceuticals was acquired by AstraZeneca for $39 billion in July 2021 and the ALXN ticker was delisted. Anthem renamed itself Elevance Health in June 2022 and now trades under the ticker ELV on the NYSE. GlaxoSmithKline changed its name to GSK plc in May 2022.
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Shannon Terrell is a lead writer and spokesperson at NerdWallet and a former editor at Finder, specializing in personal finance. Her writing and analysis on investing and banking has been featured in Bloomberg, Global News, Yahoo Finance, GoBankingRates and Black Enterprise. She holds a bachelor’s degree in communications and English literature from the University of Toronto Mississauga.
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