The healthcare sector is conspicuous in its absence from this year’s bull market for stocks. As of Dec. 17, the S&P Health Care Select Sector Index was higher by just 3.2% since the start of the year compared to a 28.3% gain for the S&P 500. Hope isn’t lost for the sector, as there’s no shortage of experts betting healthcare stocks are in for better things in 2025. Investors willing to take that bet or those who aiming tap some attractively valued stocks may want to consider pharmaceuticals, which have been healthcare “leaders” of sorts in 2024. Take the case of the VanEck Pharmaceutical ETF (PPH).
That fund is beating the aforementioned S&P Health Care Select Sector Index by a margin of 3-to-1 this year. So while pharma stocks are trailing the broader market, they are trouncing their home sector. And that could signal more upside for PPH in 2025 if the healthcare sector rebounds in earnest.
PPH Has Ingredients for 2025 Rebound
The $607 million PPH, which turns 13 years old on December 20, may not be home to glamorous stocks hailing from the communication services and technology sectors. But what the ETF does have is a lineup full of high-quality names with wide moat credentials.
Morningstar’s recently published list of the 22 best healthcare stocks to own over the long term features a significant portion of the PPH roster and nearly all of the ETF’s largest holdings. A prime example is Pfizer (PFE), which accounts for 4.38% of the PPH portfolio.
“Pfizer’s patent-protected drugs carry strong pricing power that enables the firm to generate returns on invested capital in excess of its cost of capital,” noted Morningstar analyst Karen Andersen. “The patents give the company time to develop the next generation of drugs before generic competition arises.”
The research firm also highlighted the wide moat and product pipeline of Dow component Johnson & Johnson (JNJ), which is PPH’s third-largest holding.
J&J is “supported by intellectual property in the drug group and intellectual property and switching costs in the device segment … Several of J&J’s key next-generation pipeline drugs are specialty drugs that tend to carry strong pricing power as well as lower regulatory hurdles for approval,” added Andersen.
Other PPH holdings appearing on the Morningstar list include Bristol-Meyers Squibb (BMY), Merck (MRK), Astrazeneca (AZN), and Novartis (NVS), among others.
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