A group of healthcare companies is drawing investor interest due to their low valuations relative to broader market indices, with several trading below historical averages. The sector's resilience and defensive characteristics make it a compelling option amid rising equity market concerns.
- Eight healthcare stocks are under scrutiny for their low valuations relative to the broader market.
- Average forward P/E for the group is 16.3x, below the S&P 500's 22.4x.
- Combined dividend yield across the group is 3.1%, higher than the S&P 500’s 1.8%.
- Six of the eight firms have at least a decade of consecutive dividend increases.
- Eli Lilly and Thermo Fisher Scientific report double-digit revenue and earnings growth.
- Institutional ownership in healthcare stocks rose 11% in Q3 based on public filings.
Investors are turning to select healthcare stocks as a strategic hedge against elevated valuations in the broader U.S. equity market. With the S&P 500 approaching record highs and price-to-earnings ratios exceeding 22x, a subset of healthcare firms is trading at a discount, offering potential upside in a volatile environment. Among the names gaining attention are Eli Lilly (LLY), Novo Nordisk (NVO), UnitedHealth Group (UNH), Johnson & Johnson (JNJ), AbbVie (ABBV), Bristol-Myers Squibb (BMY), Merck & Co. (MRK), and Thermo Fisher Scientific (TMO). These eight companies collectively represent diverse segments of the healthcare ecosystem, including pharmaceuticals, biotechnology, medical devices, and healthcare services. Their average forward P/E ratio stands at 16.3x, significantly below the S&P 500’s 22.4x. Additionally, six of the eight have raised dividends consecutively for over 10 years, with a combined dividend yield of 3.1%, outpacing the S&P 500’s 1.8% average. Market analysts note that despite strong performance in the past two years, the healthcare sector has lagged behind tech-driven growth stocks, leading to a valuation correction. This divergence has created entry opportunities, particularly in firms with robust pipelines and consistent cash flows. For instance, Eli Lilly’s diabetes and obesity drug GLP-1 class has driven 28% year-over-year revenue growth, while Thermo Fisher Scientific posted a 12% increase in Q3 net income due to strong demand in life sciences tools. The sector’s defensive nature becomes more appealing during periods of interest rate uncertainty or economic slowdown. Institutional investors have increased allocations to healthcare equities by 11% in the last quarter, according to public filings, suggesting growing confidence. The action is particularly notable among large-cap funds managing long-term portfolios seeking stable returns.