MW 10 stocks favored to gain up to 30% in a sector that has missed this year's rally
By Philip van Doorn
All but two of the S&P 500's sectors are up so far in 2025
The S&P 500 has returned 9% this year with dividends reinvested. That follows returns for the large-cap U.S. benchmark index of 25% in 2024 and 26.3% in 2023. Are you surprised? Through April 8, the index was down 15% for 2025 in the wake of President Donald Trump's "liberation day" tariff announcements. This has been a breathtaking rebound rally.
But there are always sectors that stand out for underperformance. Here is a ranking of total returns for 2025 through July 30 for the 11 sectors of the S&P 500 SPX, ascending, with the full index at the bottom. All returns in this article include reinvested dividends.
Sector or index 2025 return Forward P/E Forward P/E to 5-year average Forward P/E to 10-year average Healthcare -1.6% 16.8 98% 102% Consumer Discretionary -1.0% 29.6 96% 107% Energy 4.3% 15.2 155% 113% Consumer Staples 4.5% 22.5 109% 113% Real Estate 5.2% 18.3 95% 97% Materials 6.6% 20.7 113% 119% Financials 9.8% 16.8 109% 114% Communication Services 11.5% 19.8 103% 104% Information Technology 14.0% 30.1 118% 143% Utilities 14.1% 18.4 103% 105% Industrials 16.1% 25.3 117% 129% S&P 500 9.0% 22.6 111% 120% Source: FactSet
You might need to scroll the table to see all of the data. The table includes forward price-to-earnings ratios for the sectors and the full index and their current levels relative to five- and 10-year averages. These are ratios of prices divided by rolling 12-month consensus earnings-per-share estimates among analysts polled by FactSet, weighted by market capitalization.
The healthcare sector is tied with the financial sector for the lowest P/E, and the healthcare sector is one of only three sectors trading below five-year average P/E valuations. It also trades second-lowest to its 10-year P/E, with the real-estate sector cheapest on this basis.
Two sectors have had negative total returns so far this year. But a deeper look shows the healthcare sector standing out as this year's weakest performer. There are 60 stocks in the healthcare sector and 32 of them were down for 2025 through Wednesday. Among the 51 stocks in the consumer-discretionary sector, only 19 of the stocks were down for 2025 through Wednesday.
The consumer discretionary sector is top-heavy. At the end of 2024, Amzon.com Inc. $(AMZN.UK)$ made up 37% of the sector's market cap, while Tesla made up 21%. Amazon's stock was up 5% for 2025 through Wednesday, but Tesla Inc. $(TSLA)$ was down 21% - it placed a drag on the entire sector, putting its return in the red so far in 2025.
Screening the S&P 500 healthcare sector
Here are two examples of exchange-traded funds that make it easy to invest in the entire S&P 500 healthcare sector. The Health Care Select Sector SPDR ETF XLV tracks the sector by holding all of its stocks, weighted by market cap. And for a broad approach that doesn't play favorites, there is the Invesco S&P 500 Equal Weight Health Care ETF RSPH.
To set the stage for a healthcare sector screen, let's look at the sectors of the S&P 500 again, this time sorting by projected compound annual growth rates (CAGR) for revenue from 2025 through 2027, based on consensus estimates among analysts polled by FactSet.
Sector or index Estimated revenue CAGR from 2025 through 2027 Estimated EPS CAGR from 2025 through 2027 Information Technology 7.8% 16.1% Industrials 6.7% 15.1% Communication Services 6.7% 11.1% Real Estate 6.6% 6.9% Consumer Discretionary 5.8% 14.9% Healthcare 5.8% 11.5% Financials 5.4% 12.1% Utilities 5.1% 8.3% Materials 4.2% 14.8% Energy 3.7% 17.7% Consumer Staples 0.8% 7.3% S&P 500 5.4% 13.2% Source: FactSet
The information-technology sector is expected to increase revenue and EPS most rapidly over the next two years, which helps explain why its forward P/E ratio (in the first table above) is the highest among the 11 sectors in the S&P 500.
The healthcare sector is in the middle of the pack, with a projected revenue CAGR higher than that of the full S&P 500 (bottom row of the table) but a projected EPS CAGR below that of the index.
To screen the 60 companies in the S&P 500 healthcare sector, we first limited the list to companies with majority "buy" or equivalent ratings among analysts polled by FactSet. Then we sorted the remaining list by projected revenue CAGR. Here are the 10 that top the list, along with analysts' consensus price targets:
Company Ticker Est. revenue CAGR from 2025 through 2027 Est. EPS CAGR from 2025 through 2027 July 30 price Cons. price target Implied 12-month upside potential Eli Lilly & Co. LLY 18.5% 30.6% $760.08 $989.00 30% Insulet Corp. PODD 17.3% 24.6% $298.27 $343.17 15% DexCom Inc. DXCM 14.9% 23.4% $89.06 $103.36 16% Intuitive Surgical Inc. ISRG 14.8% 14.8% $500.51 $594.12 19% Boston Scientific Corp. BSX 10.5% 13.6% $106.76 $125.43 17% Vertex Pharmaceuticals Inc. VRTX 10.3% 14.8% $469.16 $510.16 9% Edwards Lifesciences Corp. EW 10.1% 12.2% $81.16 $88.21 9% Bio-Techne Corp. TECH 8.5% 13.8% $57.71 $66.71 16% Cardinal Health Inc. CAH 8.5% 12.9% $157.90 $182.57 16% Stryker Corp. SYK 8.5% 11.5% $400.41 $433.31 8% Source: FactSet
Any stock screen is based on a limited set of data. Before buying any individual stock, you should do your own research and form your own opinion about how likely the company is to remain competitive over the next decade. One way to begin that process is by clicking the tickers for more information.
Read: Tomi Kilgore's detailed guide to the information available on the MarketWatch quote page
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-Philip van Doorn
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July 31, 2025 09:52 ET (13:52 GMT)
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