The healthcare sector experienced a dynamic year, shaped by factors such as rising patient volumes, higher occupancy rates, escalating medical costs, inflationary pressures and the resumption of elective procedures, particularly among seniors. Key trends, including the increasing use of artificial intelligence (AI), an aging population, a rise in chronic diseases and advancements in personalized medicine, are expected to persist into 2025, driving further transformation.

The sector is undergoing significant changes, with technology, innovation and a patient-centric approach as the cornerstones of its growth. Against this backdrop, stocks tied to the healthcare industry with strong growth prospects, such as McKesson Corporation MCK, Doximity, Inc. DOCS and Veracyte, Inc. VCYT, present compelling opportunities for investors as we head into 2025.

Factors Impacting Healthcare Sector in 2024

Healthcare costs continued to rise, exacerbating affordability concerns. Inflation impacted medical supply chains and labor expenses, with providers struggling to balance operational costs. The Zacks Medical Sector reported a 2.8% decline year to date, starkly contrasting with the S&P 500 Index's robust 27.7% growth.

YTD Stock Price Performance of Zacks Medical Sector

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AI adoption helped manage cost growth and improve efficiency. AI saw expanded use in areas such as diagnostic accuracy, patient monitoring and administrative task automation this year, with broader adoption expected in the coming year.

Mental health services gained significant attention, with initiatives such as the Mental Health Parity and Addiction Equity Act pushing for equitable coverage for mental health care alongside physical health services.

With rising demand for medical services, elective procedures and occupancy rates, demand for medical equipment, devices, healthcare-related technologies, medications, prescription volumes and testing volumes for different diseases increased this year. These trends are projected to persist into 2025, presenting growth opportunities for industry players.

To meet surging inpatient and outpatient demand, healthcare providers invested in capacity expansion through new bed additions, acquisitions and de novo projects. The sector also witnessed heightened merger and acquisition activity as companies sought to consolidate resources and achieve operational synergies, setting the stage for long-term growth.

Healthcare Stocks Factors to Watch Out for in 2025

Pharmaceutical and medical device companies are increasingly adopting direct-to-consumer (DTC) models, bypassing traditional healthcare provider networks. While this shift can improve patient accessibility and engagement, it raises concerns about its impact on the relationship between patients and their regular providers and potential gaps in coordinated care. 

The rising demand for psychiatric care, for both children and adults, has led to a proliferation of behavioral health urgent care clinics across the country. Companies in this space, such as Acadia Healthcare, are under media scrutiny due to concerns over billing practices and treatment durations. Investors are expected to closely monitor these companies to ensure sustainable practices.

Although inflation rates are stabilizing, medical costs remain a critical challenge for healthcare organizations. Industry players are expected to focus heavily on cost-management strategies, leveraging technologies like AI, telemedicine and automation to improve efficiency and mitigate rising expenses. Personalized medicine and digital health solutions are expected to gain traction, offering opportunities for companies that innovate and invest in these areas.

Potential policy changes under the new administration could influence healthcare sector profitability. Concerns about cutting government spending, reducing hospital funding and expiring insurance subsidies are creating uncertainty. These factors could pressure profit margins for industry players, emphasizing the need for companies to adapt to a potentially leaner funding environment.

Given this backdrop, we have selected stocks that offer a mix of innovation, stability and growth potential that investors can leverage heading into 2025. While no investment is without risks, these companies are well-positioned to deliver strong returns in a dynamic healthcare sector.

Each of these companies currently sports a Zacks Rank #1 (Strong Buy) and has a market cap of more than $1 billion. You can see the complete list of today’s Zacks #1 Rank stocks here.

3 Healthcare Stocks to Scoop Up

McKesson: San Francisco, CA-based McKesson is a healthcare services and information technology company. It is gaining from the continued momentum in the Pharmaceutical unit, especially for specialty products and GLP-1 medications. Growing demand for healthcare-related technologies and prescriptions from third-party logistics are driving revenues from the Prescription Technology Solutions business. It will continue to actively pursue acquisitions to drive inorganic growth.

The Zacks Consensus Estimate for McKesson’s current-year earnings is pegged at $32.73 per share, indicating 19.3% year-over-year growth. It has witnessed three upward estimate revisions in the past 30 days against none in the opposite direction. MCKbeat the Zacks Consensus Estimate for earnings in three of the last four quarters and missed once, with an average surprise of 5%.

Average Broker Recommendation: 1.41

Last Closing Price: $576.24

Doximity: Headquartered in San Francisco, CA, Doximity is a cloud-based digital platform operator for medical professionals in the United States. Analysts like its history of consistent execution. Its sustained billing growth indicates robust customer demand. The company is quite efficient at acquiring new customers, and its customer acquisition cost payback period signals a strong brand reputation and differentiated product offering.

The Zacks Consensus Estimate for Doximity’s current-year earnings is pegged at $1.14 per share, indicating a 20% year-over-year jump. It has witnessed two upward estimate revisions in the past 30 days against none in the opposite direction. DOCSbeat the Zacks Consensus Estimate for earnings in each of the last four quarters, with an average surprise of 22.1%.

Average Broker Recommendation: 2.37

Last Closing Price: $52.14

Veracyte: South San Francisco, CA-based Veracyte is a global diagnostics company that provides clinicians valuable insights to diagnose and treat cancer. While profits from existing products continue to grow, its investments in new genetic tests to detect diseases will add to the growth story. Its new tests are likely to help the healthcare system reduce unnecessary overtreatment costs and help patients slash the burden.

The Zacks Consensus Estimate for Veracyte’s current-year earnings is pegged at 38 cents per share, indicating a massive improvement from the year-ago loss of $1.02. It has witnessed two upward estimate revisions in the past 30 days against none in the opposite direction. VCYTbeat the Zacks Consensus Estimate for earnings in each of the last four quarters, with an average surprise of 520.6%.

Average Broker Recommendation: 1.86

Last Closing Price: $43.22

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