Best Health Care Stocks to Watch in February 2025

What to Know About the Health Care Sector

The health care sector was among the hardest hit by the COVID-19 pandemic and has yet to fully recover; the sector continues to face a significant labor shortage that has been exacerbated by ongoing inflation concerns. Significant elements of the way health care operations function—from a shift away from in-person medical appointments to changes in insurance and demand for new products, among many others—have forced long-time leaders in the space to reevaluate their offerings and presented openings for upstart firms to gain a foothold. Going forward, the health care sector will wrestle with a growing population of patients who are eligible for Medicaid and Medicare, opportunities presented by AI, and more.

One trend for investors to keep a close eye on is the ongoing popularity of GLP-1 agonists, a type of drug used to treat Type 2 diabetes and to help with weight loss. With about 1 billion people globally living with obesity, the potential market for these drugs is incredibly large. The two leading providers of these drugs are Novo Nordisk A/S (NVO) and Eli Lilly and Co. (LLY), but the market is far from settled.

How We Chose the Best Health Care Stocks

To screen for the best health care stocks this month, we looked at firms listed on either the Nasdaq or the New York Stock Exchange. To ensure we focused on established companies, we filtered out any companies with a share price below $5, with a minimum daily trading volume of under 100,000, and with a market capitalization below $300 million. From that subset of stocks, we ranked companies according to the highest 30-day percentage return.

Notably, none of the companies in our results had a P/E ratio. One of the most common reasons for a company to not have a P/E ratio is if it either took a loss or generated no earnings in the given time period, or in the prior-year period for comparison. This makes the calculation of a P/E ratio impossible. For clinical-stage pharmaceutical firms, many of which are pre-revenue or consistently post losses while developing their products, it is common to not have a P/E ratio until the launch of a significant drug product.

Health Care Stock Advantages and Disadvantages

National health expenditures reached $4.9 trillion in 2023, making the health care sector massive. A key benefit health care provides to investors is consistent demand. Because individuals will always have medical needs to be met, the overall demand for health products and services typically remains at least constant and tends to increase over time as populations grow older. Nationwide health care expenditures are expected to surge to $6.8 trillion by the year 2030.

Health care companies are enticing to investors because they are highly incentivized to use and create new technology, both to meet rising demand and to improve the affordability of care they can offer. This focus on innovation may mean that health care stocks offer the potential for short- and long-term gains.

It is common in the sector for individual companies to experience a significant breakout when an important new product is launched—such as a new medical device with broad applications or a blockbuster new drug—or even when clinical trial data is encouraging. Health care stocks often experience astronomical rallies during these moments.

On the other hand, there are some risks to investing in health care companies that investors should be aware of as well. One of the biggest risks is the size and scope of the sector. Due to the technical nature of the work of many health care companies, it can be difficult for outside investors to accurately assess the viability of a company or its products. Additionally, many companies in the space are heavily impacted by legislation, which can change and contribute to volatility.

Undoubtedly there are opportunities for major returns for investors looking to the health care sector. However, no one can predict how a company’s stock may perform. The companies above led the sector in our screen, but past performance is not a guarantee of future returns.

The Bottom Line

The health care sector is massive, complex, and rich with opportunities for investors willing to take the time to understand its ins and outs. Our screen favors companies in the pharmaceuticals space that have experienced strong returns in the last month, occasionally due to the success of a popular drug or other product. But just as some of these firms may rise rapidly, they may also fall just as precipitously, particularly if a promising new product ends up not working as expected.

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As of the date this article was written, the author does not own any of the above securities.