3 Things Investors Need to Know About the Healthcare Sector in 2026

Despite the last few years of remarkable advances in medicine, for investors considering buying healthcare stocks in 2026, this isn't a year to go on autopilot. Valuations of healthcare stocks aren't cheap, winning investments of yesteryear are quite crowded, and the U.S. system's pricing politics keep trending toward disruptive change happening in the future.

So if you're looking to invest, there are three things you need to know.

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1. Trending stocks are rarely bargains

The U.S. stock market is still pricing in a lot of optimism regarding earnings growth this year. The S&P 500's forward 12-month price-to-earnings (P/E) ratio is presently around 22.2. Healthcare looks somewhat less stretched, with the S&P 500 healthcare sector's forward P/E at 18.7. But that doesn't mean the healthcare stocks investors are clamoring to buy are undervalued.

For instance, Eli Lilly (NYSE: LLY), one of the biggest winners of the GLP-1 weight-loss drug boom, currently has a forward P/E of 30.6, and the market has broadly treated its growth story like it'll go on forever without interruption. This means buying at its current price is riskier than it might seem.

Less mature participants in the weight-loss drugs market, like Viking Therapeutics (NASDAQ: VKTX), are often instructive examples of what happens to those who invest at the peak of a stock's popularity. After some worse-than-expected clinical trial results in late 2025, Viking's stock crashed after a meteoric rise, and it's now down by 8.6% over the last 12 months.

2. Healthcare is neither cyclical nor unbreakable

Healthcare demand often holds up better than discretionary spending when consumers start to feel like they need to cut back. But that doesn't mean revenues or earnings of healthcare businesses are immune to pressure.

For instance, when inflation runs hot or growth slows, both of which are potentially looming large in the perception of consumers at the moment (regardless of the actual reality), the pressure for politicians to "do something" about medical costs tends to increase quite rapidly, and that pressure can eventually cause impacts to drug pricing, reimbursement rules, and also insurer behavior.

3. The U.S. payor system is stable, but only for now

The last thing for investors to know about buying healthcare stocks in 2026 is how money actually flows through the sector.

In the U.S., dollars flow from a mixture of private insurance payers, public payers like Medicare and Medicaid, and out-of-pocket spending, with pharmacy benefit managers (PBMs) sitting in the middle. That pattern won't be reinvented in 2026, but the landscape is shifting at the margin.

The Medicare drug price negotiation mandated under the Inflation Reduction Act (IRA) is slated to begin implementation, with the government's negotiated (lower) prices for the first set of drugs in its purview taking effect in 2026. There's a chance those changes will put drugmakers' margins under pressure, and future years could bring similar policies that further alter the landscape.

So don't invest without understanding how a business gets paid and which types of laws or new policies could affect its bottom line.

Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool recommends Viking Therapeutics. The Motley Fool has a disclosure policy.