Andrew Bary

Healthcare stocks now are at their cheapest level relative to the overall market in 30 years following a tough first half for former industry leaders such as UnitedHealth Group, Merck, and Pfizer.

That could offer opportunities, since growth-oriented investors who once gravitated towards healthcare have pivoted to other sectors, notably technology, industrials, and even electric utilities.

The portfolio strategy team at Goldman Sachs ranks the 11 sectors in the S&P 500 index by absolute and relative price/earnings ratios.

Healthcare stocks now trade for 16 times forward earnings, compared to 30 for technology and 22 for the S&P 500 index. Most sectors are cheap versus their 10- and 30-year averages relative to the S&P 500 index, but healthcare stands out in the zero percentile over the past 10 years, according to Goldman. Healthcare has the second lowest sector P/E ratio, only ahead of energy at 15 times forward earnings.

Former healthcare industry leader UnitedHealth is down 44% this year, leading declines in the tough managed-care group. Merck has lost 20%, and Pfizer is off 7%. Diet-drug leader Eli Lilly is about flat this year despite sharp earnings gains as investors worry about pricing and competition in GLP-1 drugs.

Valuations are reasonable, with Johnson & Johnson, AbbVie, and UnitedHealth trading for about 15 times forward earnings, while Merck and Pfizer have single-digit P/Es. Lilly's P/E is down to 35 from over 50 last year. Dividend yields also are ample. Merck yields 4%, J&J and AbVie over 3%, and Pfizer 7%.

Other inexpensive sectors relative to history include consumer staples, materials, communications services, real estate, and financial services. Real estate stocks, for instance, are the sixth percentile relative to the S&P 500 over the past 10 years. Technology is now in the 89th percentile over the past 10 years and in the 63rd for the past 30 years relative to the S&P 500.

But the richest sector relative to its history is industrials. Trading for 25 times forward earnings, the sector is at the 96th percentage relative to the S&P 500 over the past 30 years.

Industrials ae led by General Electric, RTX, Caterpillar, and Uber Technologies. GE now trades for about 30 times forward earnings. GE and RTX are benefiting from strength in commercial aircraft manufacturing, Caterpillar for its tech innovations in farming, and Uber for its exposure to ride hailing and robotaxies.

Write to Andrew Bary at andrew.bary@barrons.com

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July 21, 2025 12:40 ET (16:40 GMT)

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