Healthcare Stocks to Watch for Long-Term Investors in 2026

In January 2025, Eli Lilly briefly surpassed a $900 billion market capitalization — making it more valuable than the entire GDP of Switzerland. A single pharmaceutical company, propelled by a weight-loss drug that millions of people could not stop talking about, had become one of the ten most valuable corporations on Earth. If that does not make you pause and reconsider where the next decade of stock market returns might come from, nothing will.

Healthcare is not a sector that typically generates cocktail-party excitement. It lacks the dazzle of artificial intelligence or the cultural cachet of electric vehicles. Yet beneath its clinical, sometimes bureaucratic exterior lies one of the most durable wealth-creation engines in modern capitalism. People get sick regardless of whether the economy is booming or contracting. Populations age whether governments balance their budgets or not. And medical innovation — from gene therapies to robotic surgeons — keeps unlocking entirely new markets that did not exist five years ago.

For long-term investors in 2026, healthcare presents a rare combination: defensive stability during downturns and secular growth driven by demographics, innovation, and expanding global access. The S&P 500 Health Care Index has delivered annualized returns of roughly 10–12% over the past two decades, keeping pace with — and sometimes exceeding — the broader market, but with meaningfully lower volatility during recessions. During the 2008 financial crisis, healthcare stocks fell about 25%, compared with 37% for the S&P 500 overall. During the COVID-19 crash of March 2020, the sector again proved more resilient than most.

But not all healthcare stocks are created equal. The sector is vast, spanning everything from a $500 billion pharmaceutical giant with a 3% dividend yield to a $2 billion biotech burning through cash while its lead drug candidate sits in Phase II trials. Making smart choices here requires understanding the sub-sectors, the catalysts, and the risks — which is exactly what this article will do. We will walk through the GLP-1 obesity drug revolution, examine big pharma dividend machines, spotlight biotech innovators, tour the medical device space, look at health insurance and healthcare IT, and finish with a practical comparison of healthcare ETFs. By the end, you will have a clear framework for building a healthcare allocation that can compound wealth for years to come.

Why Healthcare Deserves a Permanent Seat in Your Portfolio

Before diving into individual stocks, it is worth understanding the structural forces that make healthcare a uniquely attractive long-term sector.

The Rare “Defensive Growth” Profile

Most sectors force investors to choose: do you want stability (utilities, consumer staples) or growth (tech, consumer discretionary)? Healthcare offers both. Demand for medical products and services is largely inelastic — people do not stop taking their blood pressure medication because the economy slows down. This gives healthcare companies predictable revenue streams even in recessions, which is why the sector is classified as “defensive.”

At the same time, healthcare spending as a share of GDP continues to climb in virtually every developed nation. In the United States, healthcare spending reached approximately $4.8 trillion in 2024, representing about 17.6% of GDP. That percentage has roughly doubled since the early 1980s, and demographic trends suggest it will keep rising. This is not a mature, stagnant market — it is a growth market with defensive characteristics.

The Aging Population Tailwind

By 2030, every single Baby Boomer in the United States will be over 65. Globally, the World Health Organization projects that the number of people aged 60 and older will double from 1.4 billion in 2025 to 2.1 billion by 2050. Older populations consume dramatically more healthcare: a person over 65 spends roughly three to five times more on medical care than someone in their twenties.

This is not a trend that can be legislated away or disrupted by a startup. It is demographic gravity — slow, powerful, and essentially unstoppable. Every hip replacement, every chronic disease management plan, every long-term care facility, and every prescription drug refill represents revenue flowing to healthcare companies. For investors, this is as close to a guaranteed demand tailwind as the market offers.

The GLP-1 Revolution: Obesity Drugs Reshaping an Entire Industry

No discussion of healthcare investing in 2026 can begin without addressing the seismic shift caused by GLP-1 receptor agonists — the class of drugs that includes semaglutide (marketed as Ozempic and Wegovy by Novo Nordisk) and tirzepatide (marketed as Mounjaro and Zepbound by Eli Lilly). These medications, originally developed for type 2 diabetes, have proven spectacularly effective for weight loss, and they are rewriting the investment thesis for multiple healthcare sub-sectors simultaneously.

Eli Lilly (LLY): The GLP-1 Market Leader

Eli Lilly’s tirzepatide has emerged as arguably the most commercially successful drug launch in pharmaceutical history. Mounjaro for diabetes and Zepbound for obesity generated combined revenues exceeding $12 billion in 2024, and analysts project that number could reach $25–30 billion by 2027. In clinical trials, tirzepatide demonstrated average weight loss of approximately 22–25% of body weight — results that were nearly unimaginable just five years ago.

What makes Lilly particularly interesting for long-term investors is its pipeline beyond GLP-1. The company has orforglipron, an oral GLP-1 that would eliminate the need for injections (a massive convenience advantage), and retatrutide, a triple-hormone receptor agonist showing even greater weight loss in early trials. Lilly is also investing heavily in Alzheimer’s disease with donanemab, targeting another enormous unmet medical need.

The stock has not been cheap — trading at 50–60 times forward earnings through much of 2025 — but the market is pricing in a company that could realistically generate $60–70 billion in annual revenue by 2030, up from roughly $41 billion in 2024. For investors with a five-to-ten year horizon, the question is whether Lilly can execute on its pipeline, not whether the demand exists.

Novo Nordisk (NVO): The Original GLP-1 Pioneer

Novo Nordisk was the first company to commercialize GLP-1 drugs at massive scale, and its semaglutide franchise (Ozempic, Wegovy, and Rybelsus) generated approximately $28 billion in revenue in 2024. The Danish company controls roughly 50–55% of the global GLP-1 market and has decades of experience in diabetes care that gives it deep relationships with endocrinologists and healthcare systems worldwide.

However, Novo has faced challenges. The SELECT cardiovascular outcomes trial showed that Wegovy reduced major cardiovascular events by 20%, which was a strong result but raised questions about whether tirzepatide might eventually prove superior. Competition from Lilly has been more intense than many expected, and Novo’s stock pulled back roughly 20% from its 2024 highs as investors recalibrated market share expectations.

For long-term investors, Novo Nordisk offers a somewhat lower valuation entry point than Lilly (typically trading at 30–40 times forward earnings), a strong dividend, and exposure to what remains a multi-hundred-billion-dollar addressable market. The global obesity prevalence exceeds one billion people, and GLP-1 penetration is still in low single digits. Both Lilly and Novo can win — this is not necessarily a zero-sum game.

Big Pharma Stalwarts: Dividend Machines With Growth Potential

While the GLP-1 story dominates headlines, several large-cap pharmaceutical companies offer compelling value propositions for long-term investors who want income, stability, and moderate growth. These are the blue-chip workhorses of healthcare — companies with diversified product portfolios, global distribution networks, and decades-long track records of returning cash to shareholders.

Johnson & Johnson (JNJ)

Johnson & Johnson completed its separation from Kenvue (the consumer health spin-off) and is now a focused pharmaceutical and medical technology company. The pharmaceutical segment, anchored by immunology blockbuster Darzalex (multiple myeloma) and Tremfya (psoriasis), generated over $55 billion in revenue in 2024. JNJ carries one of only two AAA credit ratings among U.S. corporations (the other being Microsoft), and it has raised its dividend for over 60 consecutive years.

The risk with JNJ is its patent cliff. Stelara, which generated approximately $10 billion annually, began facing biosimilar competition in 2025. Management has guided toward mid-single-digit revenue growth through pipeline products and acquisitions, but the market remains skeptical — the stock trades at roughly 14–16 times forward earnings, a discount to the broader pharma sector. For income-focused investors, that discount and the 3%+ dividend yield make JNJ a classic value-income play.

Pfizer (PFE)

Pfizer is the ultimate “show me” story in 2026. After generating over $100 billion in COVID-19 vaccine and Paxlovid revenue between 2021 and 2023, the company experienced a dramatic revenue normalization that sent the stock tumbling from nearly $60 to the low $20s. The $43 billion acquisition of Seagen in 2023 was meant to rebuild the growth narrative through oncology, but integration costs and debt have weighed on sentiment.

However, for contrarian investors, Pfizer at 9–11 times forward earnings with a 6%+ dividend yield represents a deep-value opportunity if the oncology portfolio delivers. The Seagen acquisition brought in antibody-drug conjugates (ADCs) like Padcev and Adcetris, which are among the most promising drug modalities in cancer treatment. If Pfizer can generate $10–15 billion from its oncology portfolio by 2028–2030, the current valuation looks extremely attractive in hindsight.

AbbVie (ABBV)

AbbVie successfully navigated its own patent cliff — the loss of Humira exclusivity in the United States in 2023 — better than almost anyone expected. The immunology successors Skyrizi and Rinvoq are on track to generate combined revenues exceeding $25 billion by 2027, more than offsetting Humira’s decline. AbbVie also has a growing presence in oncology (Imbruvica, Venclexta) and neuroscience (Vraylar for depression and bipolar disorder).

The stock trades at roughly 14–16 times forward earnings with a dividend yield near 3.5%. AbbVie has raised its dividend for over 50 consecutive years (including its history as part of Abbott Laboratories). For investors seeking a pharma company that has already proven it can replace lost revenue from a blockbuster drug, AbbVie is arguably the strongest example in the sector.

Merck (MRK)

Merck’s investment case centers on Keytruda, the world’s best-selling drug with approximately $25 billion in annual sales. Keytruda is a PD-1 checkpoint inhibitor used across more than 30 cancer types, and it has become the backbone of modern oncology treatment. The problem? Keytruda’s core patents begin expiring in 2028, creating a massive revenue cliff that Merck must address.

Management has been aggressively building the pipeline through acquisitions, including the $11 billion purchase of Prometheus Biosciences (autoimmune diseases) and partnerships in cardiovascular and metabolic disease. Merck also has a strong animal health business (Organon was spun off, but animal health remains) that provides diversification. The stock trades at roughly 12–14 times forward earnings, reflecting the market’s anxiety about the post-Keytruda era. If Merck’s pipeline delivers even modestly, the current price could prove to be a bargain.

Biotech Innovators: High-Risk, High-Reward Opportunities

If big pharma companies are the blue-chip dividend aristocrats of healthcare, biotechs are the growth stocks — companies pushing the boundaries of science with the potential for outsized returns but also significant risk. The large-cap biotechs discussed here sit in a sweet spot: they have established products generating substantial revenue, but they also have pipelines that could drive meaningful upside.

Amgen (AMGN)

Amgen is a $160 billion biotech giant with a portfolio spanning oncology, cardiovascular disease, inflammation, and bone health. Key products include Prolia/Xgeva (bone health), Repatha (cholesterol), Lumakras (lung cancer), and the recently launched obesity drug candidate MariTide. Yes, even Amgen is entering the GLP-1 race — MariTide is a bispecific antibody that targets both GLP-1 and GIP receptors and requires dosing only once a month, compared to weekly injections for Wegovy and Zepbound.

If MariTide delivers competitive weight loss with less frequent dosing, Amgen could capture meaningful share of the obesity market. The stock trades at roughly 14–16 times forward earnings — significantly cheaper than Lilly — which suggests the market is not yet pricing in a major obesity drug success. That creates an asymmetric opportunity: if MariTide works, the upside is substantial; if it does not, Amgen’s existing portfolio and 3%+ dividend yield provide a floor.

Gilead Sciences (GILD)

Gilead transformed the treatment of hepatitis C with Sovaldi and Harvoni, then built a dominant franchise in HIV with Biktarvy, which generates approximately $12 billion annually. Biktarvy is the most prescribed HIV treatment globally and has a competitive moat built on efficacy, tolerability, and simplicity (single tablet, once daily).

The more exciting growth story at Gilead is lenacapavir, a long-acting HIV prevention drug that showed 100% efficacy in a pivotal trial — meaning no participants who received the drug contracted HIV. Lenacapavir requires only twice-yearly injections, which could revolutionize HIV prevention in high-burden regions. Additionally, Gilead has been building its oncology presence through its Trodelvy franchise and the $21 billion acquisition of Immunomedics.

Gilead trades at roughly 12–14 times forward earnings with a dividend yield near 3.5%, making it one of the cheapest large-cap biotech names. The combination of a stable HIV base, potential lenacapavir blockbuster, and growing oncology pipeline makes it a compelling value play in the biotech space.

Vertex Pharmaceuticals (VRTX)

Vertex is a different animal entirely. The company dominates the cystic fibrosis (CF) market with Trikafta, generating roughly $9–10 billion annually from a disease that affects about 85,000 patients globally. That might sound like a small market, but Vertex has captured virtually all of it, and Trikafta’s combination of efficacy and lack of competition gives it enormous pricing power.

What makes Vertex especially exciting in 2026 is its diversification beyond CF. The company won FDA approval for Casgevy, the first CRISPR-based gene therapy, for sickle cell disease and beta-thalassemia. Vertex also has promising programs in pain (suzetrigine, a non-opioid pain treatment), kidney disease, and type 1 diabetes (with cell therapy approaches). If even one of these programs becomes a significant commercial product, Vertex’s growth runway extends well beyond CF.

The stock is not cheap at 25–30 times forward earnings, but Vertex has one of the cleanest growth profiles in biotech: massive free cash flow from CF, multiple pipeline shots on goal, and no dividend (all cash is reinvested into R&D and acquisitions). It is a quality compounder for patient investors.

Medical Devices and Robotic Surgery: The Hardware Side of Healthcare

While drugs dominate healthcare headlines, the medical technology (medtech) sub-sector is a quiet compounder that deserves attention. These companies make the physical tools — surgical robots, heart monitors, insulin pumps, orthopedic implants — that doctors and hospitals depend on every day. Medtech stocks tend to have more predictable revenue than pharma (no patent cliffs in the traditional sense), strong recurring revenue from consumables and services, and less regulatory risk than drug makers.

Intuitive Surgical (ISRG)

Intuitive Surgical is the undisputed king of robotic surgery. Its da Vinci surgical system has been installed in more than 9,000 hospitals worldwide, and the company’s newer da Vinci 5 platform is driving an upgrade cycle that could last several years. Here is what makes Intuitive’s business model brilliant: the da Vinci robot itself is a capital sale (roughly $1.5–2 million per system), but the real money comes from instruments and accessories that must be replaced after a limited number of procedures. This creates a razor-and-blade model where each installed system generates recurring revenue for a decade or more.

In 2024, Intuitive performed over 2.3 million procedures globally, up roughly 17% year-over-year. Procedure growth is the key metric because it drives instrument revenue, which accounts for the majority of the company’s sales. The stock trades at a premium — typically 55–70 times forward earnings — but Intuitive has delivered that kind of premium consistently because procedure growth has been remarkably steady through economic cycles. Surgeries, after all, cannot be indefinitely deferred.

Abbott Laboratories (ABT)

Abbott is a diversified medtech company with four segments: medical devices, diagnostics, nutrition, and established pharmaceuticals. The medical devices segment is the growth engine, driven by the FreeStyle Libre continuous glucose monitor (CGM), which has become the standard of care for diabetes management. Libre generated roughly $6 billion in 2024 and continues to grow at 20%+ as it expands into Type 2 diabetes and even non-diabetic health-conscious consumers.

Abbott also has strong positions in structural heart (MitraClip for heart valve repair), neuromodulation, and vascular devices. The company’s diagnostics business, while down from COVID-era peaks, provides steady base revenue. At roughly 22–25 times forward earnings with a 1.8% dividend yield, Abbott offers a balanced growth-and-income profile in medtech.

Medtronic (MDT)

Medtronic is the largest pure-play medical device company in the world, with products spanning cardiac rhythm management (pacemakers, defibrillators), spinal surgery, surgical robotics (Hugo system), and diabetes care. The company has struggled with execution in recent years — growth has lagged peers, and the Hugo robotic surgery platform has been slow to gain traction against Intuitive Surgical’s dominance.

However, Medtronic trades at just 15–17 times forward earnings with a 3.3% dividend yield, making it the value play in medtech. If new CEO Geoff Martha’s restructuring efforts bear fruit and the company can accelerate organic growth back to 5–6% annually, the stock could re-rate meaningfully. Medtronic also has a pipeline of next-generation products in pulsed field ablation (for atrial fibrillation) that could be significant growth drivers.

Stryker (SYK)

Stryker is the premium operator in orthopedics and surgical equipment. The company’s Mako robotic surgery platform for joint replacements has been a major competitive advantage, driving market share gains in hips and knees. Stryker consistently delivers 8–10% organic revenue growth — among the best in medtech — and has a track record of accretive acquisitions that expand its addressable market.

The stock reflects this quality, trading at roughly 28–32 times forward earnings. But for investors who believe in paying up for the best operators in a growing industry, Stryker has rewarded shareholders handsomely over time. The aging population tailwind is especially relevant here: joint replacements and spinal surgeries increase dramatically for patients over 65.

Health Insurance and Healthcare IT: The Business Backbone

If pharma and biotech companies develop the treatments, and medtech companies build the tools, then health insurers and healthcare IT companies run the business infrastructure that holds it all together. These are the tollbooth operators of healthcare — they process the payments, manage the data, and coordinate care across an enormously complex system.

UnitedHealth Group (UNH)

UnitedHealth Group is the largest healthcare company in the world by revenue, generating over $370 billion annually. The company operates through two segments: UnitedHealthcare (insurance, covering over 50 million Americans) and Optum (healthcare services, pharmacy benefits, and data analytics). Optum has been the growth engine, expanding from a technology subsidiary into a healthcare services behemoth that employs tens of thousands of physicians and operates ambulatory surgery centers, urgent care clinics, and home health agencies.

UNH has been one of the most consistent compounders in the entire market, delivering roughly 15% annualized earnings growth over the past decade. The stock trades at approximately 18–22 times forward earnings with a 1.5% dividend yield. However, the company has faced increasing political and regulatory scrutiny over its vertical integration — critics argue that having an insurer, pharmacy benefit manager, and care delivery network under one roof creates conflicts of interest. The tragic assassination of UnitedHealthcare CEO Brian Thompson in December 2024 also intensified public debate about insurance industry practices.

For long-term investors, UNH remains a core healthcare holding, but position sizing should account for regulatory tail risk. A breakup or major reform of PBM (pharmacy benefit manager) practices could affect the Optum growth story.

Elevance Health (ELV) and Cigna Group (CI)

Elevance Health (formerly Anthem) is the second-largest health insurer, operating Blue Cross Blue Shield plans in 14 states. The company benefits from its association with the Blue Cross brand, which gives it a competitive moat in individual and employer-sponsored insurance. Elevance trades at roughly 12–14 times forward earnings with a 1.5% dividend yield — a meaningful discount to UNH that reflects slower growth but also less regulatory risk due to its simpler business model.

Cigna Group took a different strategic path after selling its insurance business to Health Care Service Corporation and retaining the Evernorth pharmacy services business. Evernorth includes Express Scripts, one of the largest pharmacy benefit managers, and Accredo, a specialty pharmacy. Cigna trades at just 10–12 times forward earnings, making it one of the cheapest large-cap healthcare stocks, though PBM reform remains a key overhang. The company has been aggressively repurchasing shares, which could drive meaningful EPS growth even in a moderate revenue environment.

Healthcare IT: Veeva Systems (VEEV) and Hims & Hers (HIMS)

On the technology side, Veeva Systems (VEEV) is the dominant cloud software provider for the life sciences industry. Its CRM, clinical trial management, and regulatory compliance tools are used by virtually every major pharmaceutical company. Veeva has an exceptionally sticky business model — switching costs are enormous when a pharma company’s entire commercial and clinical infrastructure runs on your platform. The company generates over $2.5 billion in annual revenue with 80%+ gross margins and trades at roughly 30–35 times forward earnings. It is expensive but arguably deserves to be, given its monopoly-like position in life sciences cloud.

Hims & Hers Health (HIMS) represents a newer, more speculative play on healthcare consumerization. The telehealth and direct-to-consumer health company has grown explosively by offering affordable access to treatments for hair loss, sexual health, mental health, skincare, and — more recently — weight loss through compounded GLP-1 medications. Revenue surpassed $1.5 billion in 2024, growing over 60% year-over-year. However, the FDA’s stance on compounded semaglutide (Hims has offered compounded versions of brand-name GLP-1 drugs) creates significant regulatory risk. If the FDA restricts compounding, a meaningful portion of Hims’ revenue growth could evaporate. This is a high-risk, high-reward name that is not appropriate for conservative investors.

Macro Tailwinds, Patent Cliffs, and Regulatory Risks

No healthcare investment thesis is complete without honestly assessing both the structural advantages and the risks that could derail returns. Let us examine the major forces — both positive and negative — that will shape healthcare stock performance over the next five to ten years.

The Tailwinds: Why Healthcare Keeps Growing

Demographics are destiny. We have already discussed the aging population, but it is worth emphasizing just how powerful this force is. The over-65 population in the United States will grow from about 60 million in 2025 to an estimated 80 million by 2040. Each of these individuals will, on average, consume three to five times more healthcare than younger adults. This is not a forecast that depends on economic conditions, government policy, or technology adoption — it is simple biology and mathematics.

Emerging market expansion. Healthcare spending in China, India, Brazil, and Southeast Asia is growing at two to three times the rate of developed markets. As these countries’ middle classes expand, they demand access to the same pharmaceuticals, medical devices, and healthcare services available in the West. For companies like Abbott, Stryker, and Novo Nordisk, emerging markets represent an enormous addressable market expansion.

Innovation is accelerating. The past five years have seen breakthroughs in mRNA technology, CRISPR gene editing, antibody-drug conjugates, cell therapy, and AI-driven drug discovery. The FDA approved 55 novel drugs in 2023, near the record pace of recent years. Each new modality creates new markets: GLP-1 drugs created a $100 billion+ obesity market that essentially did not exist in 2020. Gene therapies are beginning to cure previously untreatable genetic diseases. AI is compressing drug discovery timelines from 10–15 years to potentially 5–8 years, which could dramatically increase pharmaceutical R&D productivity.

The Patent Cliff: Healthcare’s Recurring Nightmare

The pharmaceutical industry faces an estimated $200+ billion in branded drug revenue at risk from patent expirations between 2025 and 2030. This is not a theoretical concern — it is the single most predictable risk in healthcare investing. When a blockbuster drug loses patent protection, generic or biosimilar competitors typically capture 70–90% of sales volume within two to three years, often at 60–80% lower prices.

Key patent expirations to watch:

• Merck’s Keytruda (~$25B revenue): Core patents expire 2028
• Bristol-Myers Squibb’s Eliquis (~$12B revenue): Patent expiry 2026–2028
• AbbVie’s Imbruvica (~$4B revenue): Already facing generic competition
• Johnson & Johnson’s Stelara (~$10B revenue): Biosimilars launched 2025

For investors, the key question with any pharma stock is: can the company’s pipeline and acquisitions replace the revenue lost to patent cliffs? Companies like AbbVie have demonstrated they can. Others, like Pfizer post-COVID, are still trying to prove it.

Drug Pricing and Regulatory Risks

The Inflation Reduction Act (IRA) of 2022 gave Medicare the ability to negotiate prices for certain high-cost drugs for the first time. The first ten drugs subject to negotiation saw price reductions of 38–79%, effective in 2026. While this directly affects only a small number of drugs initially, the program is designed to expand: more drugs will be added each year, and the precedent of government price negotiation could eventually spread to other payer classes.

For investors, IRA drug pricing provisions create a long-term headwind for pharmaceutical revenue growth, though the near-term impact is manageable. Companies with drugs in earlier lifecycle stages are less affected than those with mature blockbusters. Biotech companies developing first-in-class treatments for serious diseases generally have more pricing power because there are no alternatives for patients.

Beyond pricing, potential regulatory changes to PBM transparency, prior authorization reform, and Medicare Advantage payment rates could all impact different healthcare sub-sectors. The political environment around healthcare is inherently unpredictable, which is one reason diversification across sub-sectors is particularly important.

Healthcare ETFs: A Side-by-Side Comparison

Not every investor wants to pick individual healthcare stocks — and that is perfectly fine. Healthcare ETFs provide instant diversification across the sector and are an excellent way to gain broad exposure without the company-specific risk of owning five or six individual names. Here are the four most popular healthcare ETFs, compared side by side.

XLV is the go-to choice for most investors. It holds approximately 60 large-cap healthcare stocks, with heavy weights in UNH, LLY, JNJ, and ABBV. The 0.09% expense ratio is negligible, and the fund provides broad exposure to pharma, medtech, and insurance. If you want one healthcare ETF and do not want to overthink it, XLV is the answer.

VHT is similar to XLV but holds roughly 420 stocks across the full market-cap spectrum, giving it more exposure to mid-cap and small-cap healthcare names. The performance difference versus XLV is typically small, but VHT offers marginally more diversification. The 0.10% expense ratio is essentially the same.

IBB is the large-cap biotech ETF, market-cap weighted, so it is dominated by Amgen, Gilead, Vertex, Regeneron, and Moderna. It provides targeted biotech exposure without the wild swings of small-cap biotech. However, the 0.44% expense ratio is significantly higher than XLV or VHT.

XBI is the equal-weighted biotech ETF, which means small and mid-cap companies have the same weight as large caps. This makes XBI much more volatile and speculative — it is essentially a bet on early-stage biotech innovation. The fund’s negative five-year return reflects the brutal bear market in small-cap biotech from 2021 to 2023. However, for investors who believe we are entering a biotech innovation supercycle (fueled by AI drug discovery, gene therapy, and cell therapy), XBI at depressed valuations could offer asymmetric upside.

Building Your Healthcare Portfolio for the Long Haul

Healthcare is not a sector you buy for a quick trade. It is a sector you build into your portfolio methodically and hold through multiple market cycles, letting the twin forces of demographic inevitability and medical innovation compound wealth on your behalf. The question for 2026 is not whether to own healthcare — it is how to construct your exposure.

Here is a framework for thinking about allocation across healthcare sub-sectors:

For income-oriented investors: Focus on big pharma (JNJ, ABBV, MRK, PFE) and diversified medtech (MDT, ABT). These companies offer dividend yields of 1.5–6%, long histories of dividend growth, and relatively predictable earnings. Accept that growth will be moderate (mid-single digits) but appreciate the stability and income during volatile markets.

For growth-oriented investors: Emphasize GLP-1 leaders (LLY, NVO), innovative biotechs (VRTX, GILD), and premium medtech (ISRG, SYK). These stocks trade at higher valuations but offer double-digit revenue and earnings growth potential. Be prepared for more volatility, especially around clinical trial readouts and quarterly earnings.

For diversified, set-it-and-forget-it investors: A core ETF position in XLV or VHT, representing 10–15% of your total portfolio, is a perfectly sensible approach. You will own the entire healthcare sector in proportion to market cap, automatically rebalancing as winners grow and losers shrink. Supplement with one or two individual names if you have high conviction.

Regardless of your approach, keep three principles in mind. First, diversify across sub-sectors — do not put all your healthcare capital into pharma or all into biotech. The sub-sectors have different risk profiles and performance drivers. Second, pay attention to patent cliffs — a seemingly cheap pharma stock might be cheap for a very good reason if its biggest drug is going off-patent in two years. Third, be patient — healthcare is a compounding game. The best returns come from owning quality companies through multiple cycles, not from trading around quarterly noise.

The healthcare sector in 2026 offers something for every type of long-term investor: the defensive stability of blue-chip pharma, the explosive growth potential of GLP-1 drugs and gene therapies, the steady compounding of medtech, and the tollbooth economics of health insurance. The aging of the global population is an unstoppable demographic force that will drive healthcare spending higher for decades. The companies best positioned to serve that demand — with differentiated products, strong pipelines, and disciplined capital allocation — will reward patient shareholders handsomely.

Start building your healthcare allocation today. Future you will be glad you did.

References

• Centers for Medicare & Medicaid Services (CMS) — National Health Expenditure Data, cms.gov
• World Health Organization — Ageing and Health Fact Sheet, who.int
• U.S. Food & Drug Administration — Novel Drug Approvals, fda.gov
• Eli Lilly and Company — 2024 Annual Report and Investor Presentations, investor.lilly.com
• Novo Nordisk — 2024 Annual Report, novonordisk.com
• Johnson & Johnson — 2024 Annual Report, investor.jnj.com
• AbbVie — 2024 Annual Report, investors.abbvie.com
• Merck & Co. — 2024 Annual Report, merck.com
• Intuitive Surgical — 2024 Annual Report, isrg.intuitive.com
• UnitedHealth Group — 2024 Annual Report, unitedhealthgroup.com
• U.S. Department of Health and Human Services — Inflation Reduction Act and Drug Pricing, hhs.gov
• SPDR ETFs — XLV Fund Overview, ssga.com
• Vanguard — VHT Fund Overview, vanguard.com