The global health care market is gigantic. The US health care system alone is roughly $4 trillion in size and is growing at a staggering pace. Despite the sector's recent hiccups, I'm finding a wide body of investment opportunities to help build up some of my funds' immune response to recession worries—and to thrive if the economy doesn't falter.
Here's my up-close evaluation of health care stocks at the midpoint of 2023.
Midyear diagnosis
Even though health care stocks finished in the red last year (along with every other sector, save energy), this sector far outperformed the rest of the market. Health care weakened by 4% in 2022, compared with a 20% loss for the S&P 500.
Thus far in 2023, health care stocks (−3%) have underperformed the broader US stock market (+14%). A big reason is that investors have largely gravitated to higher-growth sectors like information technology and communications (health care stocks are generally thought of as defensive investments—see "Exploring sectors" below to learn more about sector investing).
Exploring sectors
I think this sector's underperformance so far this year (see Health care vs. S&P 500 chart below) provides an opportunity to capitalize on some major trends happening in the massive global health care market. In addition to relatively attractive valuations, I'm finding a number of health care companies executing on their objectives amid a torrent of innovation. Plus, there's evidence during the first half of the year that investors are paying more attention to company fundamentals, such as sales and earnings growth, product sales, pricing power, and the outcomes of key clinical trials.
I also think there's been a normalization of health care demand following the global pandemic, and policy uncertainty for health care stocks appears low after the passage of the Inflation Reduction Act of 2022 (which had components of health care reform in it). In my view, this lowers the probability of additional health care legislation that might introduce uncertainty for health care companies this year.

Source: Fidelity Investments, as of June 25, 2023.
Health care stocks under my microscope
Consider neuro and vascular device company Penumbra (
I see the US health care system as being in the early innings of a transformation from a traditional fee-for-service model (where providers are compensated based on the volume of visits and services they provide) to a value-based model (where physicians are compensated based on patient outcomes rather than on service volumes). This model emphasizes quality of care through preventive and proactive treatments—realigning incentives among payer, provider, and patient. The new health care delivery models are expected to deliver high-quality, patient-centric services at lower costs.
In my view, several managed care companies (i.e., health insurance networks) appear poised to benefit from the transformation to value-based health care. These companies have the ability to pass through inflationary pressures, such as higher costs for medical procedures, and alter benefits to incentivize prevention. UnitedHealth Group (
It's also worth mentioning the sheer volume of health care innovation—which I think is unprecedented. For instance, previously mentioned medical device company Penumbra launched a new product to remove large blood clots in the human body called the Lightning Flash mechanical thrombectomy system. This is a novel product that uses intelligent aspiration technology with dual-clot-detection algorithms. Another example is Boston Scientific's (
I've not seen this much innovation within health care, and I think it's going to provide a lot of opportunities in the coming years.
Could health care be a recession antibiotic?
Of course, health care stocks are not immune to economic developments. Many investors are bracing for the possibility of an official recession, which could be a death sentence for this new bull market. Some businesses, such as certain pharmaceutical companies, may not be as resilient as they used to be, given less robust drug pipelines, patent exclusivity, and weaker pricing power.
But if the US and/or other global economies do enter recession this year, I expect health care stocks may hold up well relative to other sectors. I believe health care stock valuations are attractive, particularly relative to the growth potential of certain companies. And many health care stocks may offer a combination of defensive and growth characteristics, which can be attractive in a variety of economic scenarios.
Eddie Yoon manages the Fidelity Select Health Care Portfolio (
- UnitedHealth (
) - 10.2% - Boston Scientific (
) - 7.8% - Danaher (
) - 6.8% - Eli Lilly (
) - 6.2% - Thermo Fisher Scientific (
) - 5.2% - Cigna (
) - 4.0% - Penumbra (
) - 3.7% - Regeneron pharmaceuticals (
) - 3.4% - Argenx SE (
) - 2.6% - Agilon (
) - 2.3%