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Healthcare Rotation Underway: 3 Stocks Leading the Charge
Written by Dan Schmidt. Published 11/19/2025.
Key Points
- Tech stocks have been volatile lately, leading some investors to take profits and look for safer sectors.
- Healthcare has been one of the main beneficiaries of this rotation, with healthcare stocks having their largest quarterly inflows since Q1 2021.
- Eli Lilly, Merck, and AbbVie are three of the stocks leading the rotation, thanks to a variety of fundamental tailwinds.
Is the artificial intelligence revolution hitting its first roadblock? For the first time since the AI boom began in 2023, the industry is starting to feel the weight of expectations, and many of the tech sector's biggest winners have struggled amid a volatile market. Have you checked on Meta Platforms Inc. (NASDAQ: META) lately? It's down more than 20% in the last three months and now only up about 2% year-to-date. How about NVIDIA Corp. (NASDAQ: NVDA), the semiconductor stalwart? It's still up more than 35% YTD, but only 3% of that advance has come since July. And looking at the Tesla Inc. (NASDAQ: TSLA) chart is enough to have a risk-averse investor reaching for the Dramamine.
Where have the gains gone? Speculative assets and meme stocks had their day in the sun this summer, but the recent rotation has favored healthcare — a sector many investors left behind while chasing hot tech trends. Is this a brief move into safer assets, or does the rotation have staying power?
Why Healthcare Is Surging Now
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Despite several breakthroughs, the healthcare sector has lagged the broader market over the last five years. Not only have healthcare stocks underperformed the S&P 500, but the AI-driven tech industry has significantly outpaced them.
A 34% gain over that period isn't poor, but it trails the explosive rise of AI and tech stocks. However, several key factors are now pushing healthcare back into focus:
- Pharma Catalysts: Heard of GLP-1s? These drugs — while not new — have transformed diabetes and obesity treatment and created a huge revenue stream. The Trump administration recently reached a deal with several GLP-1 developers to provide access to Medicare and Medicaid patients at reduced prices.
- Attractive Valuations and Strong Earnings: Healthcare has become relatively inexpensive compared with the sky-high valuations in tech. The sector trades at about 16 times forward earnings, while tech sits well over 30 times forward earnings. Healthcare also demonstrated defensive strength during the Q1 2025 market downturn, reinforcing its appeal.
- Sector Rotation: The AI trade appears ripe for profit-taking, with many tech names now trading below their 20-day moving averages. In contrast, healthcare is seeing inflows not observed since early 2021. As investors seek stability, healthcare's defensive reputation could fuel a more sustained rally.
3 Healthcare Stocks Leading the Sector Higher
The rotation into healthcare is still in the early innings, which suggests there may be opportunity left in the sector's strongest names. Here are three large-cap healthcare companies leading the move.
Eli Lilly and Company: GLP-1 Dominance Driving Shares Higher
It was shaping up to be a lost year for Eli Lilly and Co. (NYSE: LLY) until the recent rally. The stock dipped below $630 in August for the first time since January 2024, despite the success of its GLP-1s—Mounjaro for diabetes and Zepbound for obesity. Lilly also has an oral GLP-1 tablet in Phase 3 trials that, if approved, would be easier to scale than injectable treatments.
The recent breakout in LLY shares was driven by two fundamental catalysts: strong Q3 earnings that beat both top- and bottom-line estimates, and a federal deal improving Medicare access to its drugs. With technical momentum supporting the move, LLY is reasserting its leadership in the healthcare rally.
Merck: Undervaluation Reaching Record Levels
Merck & Co. (NYSE: MRK) has been one of the more disappointing large-cap names in the sector, down nearly 7% YTD and more than 20% from its prior all-time high in July 2024. Merck is no stranger to prolonged downturns (the stock didn't reclaim its 2000 high until late 2019), but the company has a diverse pipeline and trades at a very low valuation of about 10 times forward earnings.
Merck reported 8% year-over-year sales growth in its lead oncology drug Keytruda, and total Q3 revenue exceeded $17 billion for the first time in company history. With a low valuation, a strong dividend, and multiple revenue drivers such as Keytruda and Gardasil, MRK could be an attractive buy for investors who have been sidelined for several years.
AbbVie: Diverse and Innovative Drug Portfolio
If you've had the SKYRIZI jingle stuck in your head lately, you can thank AbbVie Inc. (NYSE: ABBV). The roughly $400 billion pharmaceutical giant is also behind HUMIRA, RINVOQ and VRAYLAR, and it added BOTOX to its portfolio via a 2020 acquisition. ABBV has been one of the top performers in the healthcare sector, up more than 30% YTD, driven by strong sales of SKYRIZI and RINVOQ and back-to-back quarters of record revenue.
In Q3 2025 earnings released Oct. 31, AbbVie reported SKYRIZI sales of $4.7 billion (up 46% YOY) and RINVOQ sales of $2.2 billion (up 34% YOY), and it raised its 2026 outlook for both drugs. Despite these new revenue drivers alongside flagship HUMIRA, the stock still trades at about 19 times forward earnings — below both its historical average and the current sector average. With solid product momentum and reasonable valuation, AbbVie looks well-positioned to sustain leadership as the healthcare rally continues.
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