Investors are quietly moving toward health care. These are the stocks they buy

TLDR

• Healthcare stocks are gaining momentum as investors shift away from artificial intelligence and technology to defensive sectors
• The Healthcare Select Sector SPDR Fund closed 3% higher on Thursday, surpassing short-term resistance
• UnitedHealth and Eli Lilly top the S&P Health Care Quantitative Rankings with scores of 3.47 and 3.44.
• AI is being used in healthcare to screen drug candidates, with up to 50 times more early-stage molecules now being evaluated
• Stocks like Intuitive Surgical, Natera, and Edwards Lifesciences are highlighted as individual picks with strong growth outlooks

---

Healthcare stocks are attracting new interest from investors after a period of poor performance. The combination of defensive rotation and the growing adoption of AI in the sector is bringing healthcare names back into the spotlight.

The Healthcare Select Sector SPDR Fund closed 3% higher on Thursday. It also broke a short-term resistance level, which analysts say indicates improving momentum.

Increased trading volume in managed care stocks indicates that institutional money is moving toward the sector. Healthcare has lagged behind the broader market for years, making this shift worth watching.

The health care component of the S&P 500 is down 4% year to date. Full-year earnings growth is expected to be just 4%, the lowest of any sector.

Government pressure on drug pricing, declining enrollment rates with the Affordable Care Act, and large one-time fees at Merck have all weighed on the sector. But beneath these headline numbers, some aspects of health care are growing faster.

Artificial intelligence is changing the way pharmaceutical companies operate

Healthcare companies are using AI to screen drug molecules faster and cheaper. Computer models now do work that previously required lab technicians, says portfolio manager Shivani Vohra at Parnassus Investments.

“Five to 50 times the number of candidates are considered in the early stage,” Vohra said. This means companies can develop better drug candidates more quickly.

This is one reason why some investors are looking beyond short-term headwinds in this sector.

Individual stocks attract attention

Eli Lilly Leading the pack. Its GLP-1 obesity and diabetes drugs generate an estimated $22 billion in cash this year, expected to rise to $47 billion by 2030. Shares trade at 31 times earnings.

Eli Lilly & Company, LLY

Intuitive Surgical manufactures the Da Vinci robotic surgery platform, which is now standard equipment in many hospitals. The company is launching its first new platform in a decade, with updates in computing and imaging. The stock is down 25% over the past year and trades at 40 times earnings.

Natera offers blood tests for pregnant women and cancer patients. Revenue is expected to double to more than $5 billion by the end of the decade, although the company is not yet profitable.

Edwards Lifesciences is moving beyond heart valve replacement into a newer, faster-growing category of valve treatments. Shares are worth 29 times earnings.

Medline, which went public in December at $29 a share, recently traded for less than $35. It operates as a private supplier of medical products and trades at 23 times earnings.

Where the ratings stand

UnitedHealth Eli Lilly currently holds the top two spots in the S&P Healthcare Quant Index, at 3.47 and 3.44, respectively. Both stocks recorded gains in recent trading.

Johnson & Johnson, Thermo Fisher Scientific, and Intuitive Surgical follow in the rankings. None of the top holdings currently carry a bullish quantitative rating higher than 3.5, with most in the holding zone.

Abbott Laboratories holds the weakest score on the list at 2.71, approaching bearish territory.

AbbVie, Gilead Sciences, and Abbott round out the lower end of the rankings.

The overall picture is one of cautious stability, with select names emerging as the sector begins to find its footing again.