Health Care Stocks Recent Outperformance Will Last Through 2027

Broadening stock market leadership has been one of our favorite themes this year.

As AI stocks chop around, Health Care names are shining.

We see that theme lasting.

Said simple, Health Care stocks recent outperformance will last through 2027.

Let’s unpack why.

Health Care keeps making fresh all-time highs even as bubble fears and sticky rates keep the AI trade boxed in. 

After a decade of sharp underperformance, the sector is generating strong alpha over the past year, with gains accelerating since May (chart).

This revival is grounded in evidence-rich tailwinds including pharma megatrends, valuations, and seasonal tendencies.

We’ll break them all down…giving you a clear reason to overweight certain areas.

As a bonus, we’ll highlight 25 outliers seeing the biggest institutional inflows. The list ranges from winning blue chips to explosive outliers across frontier themes like next generation biotech and med-tech innovation.

Let’s first dive into Health Care subsectors and why they matter.

Health Care has 4 Primary Subindustries

Heath Care is one of the most diverse sectors in the stock market, helping it outperform in choppy times.

Health Care is the best performing sector in the market since the AI trade peaked in June.

It’s a hybrid that includes both cyclical and defensive sub-industries, giving it an “all-weather” ability to work in both “risk-on” and “risk-off” environments.

Health Care sub-industries include:

• Pharmaceuticals: Roughly half of the sector’s market cap and its most defensive sub-industry by far. Includes companies discovering, developing, and producing chemical-based medicines and vaccines (e.g., Eli Lilly and Company, J&J, Merck, Bristol Myers).

• Biotechnology: Firms using living organisms and cellular processes to create therapeutic treatments and gene-based solutions (Moderna, Amgen, Vertex, Gilead Sciences).
• Life Sciences Tools & Services: Businesses providing analytical tools, lab equipment, reagents, and outsourced clinical research services (Thermo Fisher Scientific, Danaher).

• Healthcare Equipment & Supplies: More cyclical as some procedures are elective. Makers of medical devices, diagnostic tools, imaging systems, and surgical appliances (Stryker Corp, Intuitive Surgical, Abbott Labs).
• Healthcare Providers & Services: Companies running hospitals, managed care plans, health insurance, and pharmacy services (HCA, CVS, Cardinal Health, Quest Diagnostics).

The Health Care sector offers both defensive and offensive positioning.

Let’s see why it’s a great buy right now.

Health Care Stocks Recent Outperformance Will Last Through 2027

Macro tailwinds for health Care are increasingly coming into view, bolstering the investment outlook.

The first reason to own Health Care stocks comes down to favorable midterm year seasonality.

Health Care stocks have historically outperformed nicely in choppy midterm election years, averaging 10.5% gains since 1990, vs only 7.4% for the S&P 500:

This backdrop makes the fundamental case that much more important.

The second reason to own Health Care comes down to ramping M&A:

Big Pharma companies are actively utilizing their deep cash reserves to acquire mid-cap biotech names. As key blockbuster drugs face patent cliffs over the coming years, M&A activity offers a strong catalyst for biotech valuations. If the current M&A frenzy continues, industry deal value could top $250B this year, according to PitchBook, up 24% from 2025.

Number 3 boils down to AI-Driven Efficiency:

AI integration in drug discovery, clinical trials, and medical device diagnostic accuracy is shortening development timelines, lowering clinical trial failure rates and increasing personalized health care, boosting structural return on invested capital across the sector.

Next is GLP-1 Expansion:

The commercial expansion of anti-obesity and diabetes therapies (GLP-1s) remains one of the largest pharma growth drivers in history. The transition toward oral formulations (pills) and combinations treating related comorbidities (cardiovascular, liver disease, sleep apnea) expands the addressable market dramatically.

Next is the Global Aging Population:

The secular trend of an aging population in developed markets (US, Japan, Australia & Western Europe) drives sustained long-term growth in prescription volumes, elective surgical procedures, medical device demand and insurance enrollment.

Lastly, Health Care stocks offer pricing inelasticity:

Medical treatments, critical care, and therapies enjoy non-discretionary demand, protecting revenues against broader macro deceleration or softening consumer spending.

Now that we can understand the drivers underpinning the pharma & biotech opportunity, do the earnings show a bright future?

Absolutely!

Health Care Earnings Growth Will Rebound in 2027

The bull market is broadening out, mirroring strong earnings growth from a growing number of sectors.

Healthcare is at the forefront of this trend.

After lagging for the last couple of years, the sector’s profitability is seen rebounding sharply to 22% next year, according to FactSet (chart).

That’s second only to 33% from tech and well ahead of the 13.6% expected for the S&P 500 in 2027:

If you want to know what moves stocks higher, it’s earnings growth.

And valuations sit right in the sweet spot.

Health Care Offers Growth at a Reasonable Price

When it comes to valuation, we never analyze it in a vacuum – we always view it relative to earnings growth.

Healthcare valuations are very attractive at under 19X 12-month forward earnings given that the sector is forecasted to grow profits 22% next year (chart).

Putting it all together, the recent ascent of health care stocks will continue to thrive boosted by seasonals, megatrends, earnings growth, and solid valuations.

But one trend above all is key to this sector working. That’s money flows.

When we plot all equity inflows for the month of August, Health stocks reign supreme commanding 26% of all inflows:

That’s your signal to act NOW!

Below is how you can make the most of this call to action.

While most research houses were too conservative and got it wrong the last few months, MoneyFlows got it right.

For access to the below list of stocks, become a Frontiers PRO Member or if you’re an emerging money manager or RIA, join our Emerging Manager Solution.

Some of the best bets in the market today are exciting frontier Health Care names.

Not only because of their strong relative performance, but because of their earnings momentum as well.

Below is a list of the top 25 healthcare stocks ranked by our proprietary MAP Score.

The list spans everything from blue chip winners to exciting Medtech and next generation Biotech Outliers.