TL/DR –
The Morningstar US Healthcare Index returned 15.2% in 2025, slightly lagging behind the 17.4% yield of the US Market Index, largely due to uncertainty around potential US drug pricing policy and healthcare tariffs. Despite significant underperformance in the first three quarters, the healthcare index saw significant outperformance in the last quarter, largely due to Pfizer’s deal with the Trump administration to lower Medicaid prices in exchange for a three-year tariff reprieve. The healthcare sector appears to be fairly valued overall, with a 1.02 market-cap-weighted price/fair value estimate ratio as of the end of 2025, with medical distribution being the most overvalued industry while healthcare plans and providers are the most undervalued.
In 2025, the Morningstar US Healthcare Index displayed a total return of 15.2%, slightly trailing the US Market Index which reported 17.4%. The sector saw an undershooting during the first three quarters but managed to outshine in the last quarter of the year. The turn-around is owed to the diminishing uncertainty around US drug pricing policy and healthcare tariffs, particularly after Pfizer’s deal with the Trump administration on September 30. The deal agreed to reduce Medicaid prices in return for a three-year tariff reprieve.
By the end of 2025, the healthcare sector seemed reasonably valued, with the market-cap-weighted price/fair value estimate ratio standing at 1.02. Medical distribution emerged as the most overvalued industry, while healthcare plans and providers appeared to be the most undervalued. Market volatility increased after Donald Trump’s presidency and Robert F. Kennedy Jr.’s appointment as the head of the Department of Health & Human Services. This resulted in increased uncertainty around many stocks, particularly in biopharma and healthcare plans.
Despite Eli Lilly’s growing market share, Novo Nordisk still trades at a discount to its fair value estimate in the obesity market. The GLP-1 and renal denervation markets are expected to represent high-conviction growth opportunities in 2026. Despite the competition, Novo and emerging competitors like Pfizer, Roche, and Amgen show promise with underappreciated innovation potential. The renal denervation market, led by Medtronic, is projected to exceed $10 billion globally by 2035.
Top Healthcare Sector Picks
GE Healthcare
- Fair Value Estimate: $98.00
- Morningstar Rating: ★★★★
- Morningstar Economic Moat Rating: Wide
- Morningstar Uncertainty Rating: Medium
Despite the sharp decline in GEHC shares due to the US tariffs in April 2025, we believe the market has overreacted. We are optimistic about GE Healthcare’s long-term growth due to its ongoing investments in product development and optimization of product mix and cost structure.
Elevance Health
- Fair Value Estimate: $507.00
- Morningstar Rating: ★★★★
- Morningstar Economic Moat Rating: Narrow
- Morningstar Uncertainty Rating: High
We consider Elevance ELV as a high-quality business and an attractive long-term investment in the managed care industry. Its strong local market share, limited exposure to Medicare, and fast-growing non-insurance businesses make it a standout among its MCO peers.
IQVIA Holdings
- Fair Value Estimate: $268.00
- Morningstar Rating: ★★★★
- Morningstar Economic Moat Rating: Narrow
- Morningstar Uncertainty Rating: Medium
IQVIA’s IQV shares have experienced pressure due to macroeconomic concerns and reduced biotech funding. Despite short-term headwinds, IQVIA remains a global leader in clinical trial services and healthcare analytics.
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