Within the dynamic, innovation-driven health care sector, the spotlight has recently been fixed on headline-grabbing developments in GLP-1 treatments for obesity and diabetes, says Fidelity Portfolio Manager John Sheehy, who believes the attention has resulted in overlooked potential among pharmaceutical companies he thinks can help deliver a steady diet of revenue and earnings growth.
“Several of these unnoticed high-quality companies are trading at a valuation reminiscent of a decade ago, an era marked by considerable concern about patent cliffs and waning innovation,” says Sheehy, who helms Fidelity® Equity Dividend Income Fund (FEQTX).
The fund seeks a yield from dividend and interest income that exceeds the composite dividend yield on securities in the S&P 500® index. As manager, Sheehy emphasizes high-quality firms with either a favorable or improving return, as well as those with a strong balance sheet, including cash on hand or cash the enterprise is reasonably expected to generate in the near future.
Accordingly, and based on Sheehy’s aim to capitalize on the recent divergence among drugmakers, he has built an overweight allocation to the pharmaceuticals, biotechnology & life sciences industry, which represents more than 9% of the portfolio’s assets as of April 30.
“Within this group, I have seen great opportunities to add to fund positions in high-quality, dividend-paying stocks at a reasonable price, which is what the fund is all about,” he says.
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He thinks three stocks in particular are well-positioned to potentially move the needle in the coming years, as they feature solid business fundamentals, promising drug pipelines, a history of returning value to shareholders, and the likelihood of achieving healthy revenue and earnings growth.
Gilead Sciences (GILD), an outsized position in the fund, is channeling its expertise and legacy of innovation into a potentially promising new oncology business, according to Sheehy, who expects the effort could yield substantial growth and redefine the company’s future.
He also notes GSK (GSK), which, despite facing lower vaccine sales, has showcased profit growth, meaningful progress in research and development, advances in specialty medicines, and successful new product launches in oncology and HIV – a testament to the company’s ability to adapt and thrive.
Lastly, Sheehy favors Merck (MRK) for its One Pipeline strategy, which blends internal innovation with external science through business development. “As one of the most active dealmakers in the industry, the company appears well-positioned to navigate the complexity of the pharmaceutical landscape with precision and foresight,” he concludes.
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John Sheehy is a portfolio manager in the Equity division at Fidelity Investments.
In this role, Mr. Sheehy manages the Fidelity Advisor Equity Income Fund and Fidelity Equity Dividend Income Fund. Additionally, he co-manages the information technology and telecommunication services sleeves of Fidelity Stock Selector Large Cap Value Fund, Fidelity Series Stock Selector Large Cap Value Fund, and Fidelity Advisor Series Stock Selector Large Cap Value Fund.
Prior to assuming his current responsibilities, Mr. Sheehy co-managed Fidelity Select Banking and Select Defense and Aerospace Portfolios. He also covered various sectors as an analyst at Fidelity, including banking, aerospace and defense, and paper and packaging.
Before joining Fidelity in 2007, Mr. Sheehy worked as an audit manager at Deloitte. He has been in the financial industry since 2007.
Mr. Sheehy earned his bachelor of arts degree in economics and accounting from the College of the Holy Cross and his master of business administration degree in finance from New York University’s Stern School of Business. He is also a Certified Public Accountant (CPA).