We recently published our article Top 10 Healthcare Stocks That Could Turn a $1000 Investment Into Something Bigger. In this piece, we take a closer look at Rhythm Pharmaceuticals Inc. (NASDAQ:RYTM) to examine its latest developments, pipeline progress, and why it continues to draw attention from investors.
For much of the past three years, the US healthcare sector has looked like the quiet guest at a very loud Wall Street party. While artificial intelligence stocks, semiconductor names, mega-cap technology companies, and AI infrastructure plays grabbed most of the market’s attention, healthcare stocks were left sitting in the corner, looking unusually cheap, unusually unloved, and, depending on who one asks, unusually interesting.
That may now be the point.
The US healthcare sector has underperformed the broader stock market for three straight years, and the numbers tell the story clearly. Healthcare returned only 0.3% in 2023, followed by 0.9% in 2024, and 12.5% in 2025. Those returns may not sound disastrous in isolation, but compared with the broader market’s stronger gains, they show a sector that has struggled to keep up with investor enthusiasm elsewhere. The weakness has continued into 2026, with the healthcare sector down 1.62% year-to-date, while the S&P 500 has climbed 10.35% over the same period.
For investors searching for the best healthcare stocks to buy, undervalued healthcare stocks, promising healthcare stocks, biotech stocks with upside potential, medical device stocks, pharmaceutical stocks, healthcare value stocks, and defensive stocks with long-term growth potential, this kind of underperformance can be more than just a warning sign. It can also be the start of a setup.
The AI Trade Left Healthcare Behind
The biggest reason healthcare has lagged, according to several market watchers, is not that the sector suddenly lost its importance. People still need medicines, hospitals, diagnostics, medical devices, insurance coverage, drug development, and life-saving treatments regardless of what is trending on Wall Street. The problem is that healthcare has been competing for attention against one of the strongest market stories of the decade: artificial intelligence.
The AI trade has pulled enormous investor interest into technology, semiconductors, cloud computing, data centers, and AI infrastructure stocks. In a market where investors are chasing earnings growth tied to artificial intelligence, defensive sectors like healthcare can look less exciting, even when their fundamentals remain intact. That is exactly the point made by Gareth Powell, Head of Healthcare at Polar Capital, who argued in a May 18 article that investor enthusiasm for artificial intelligence has pulled capital away from defensive corners of the market, including healthcare.
Michael Zinn, Managing Director and Senior Portfolio Manager at UBS, made a similar observation during a June 8 appearance on BNN Bloomberg. Zinn described the market’s recent behavior as a “catch-up trade” tied to rising earnings expectations in AI infrastructure. In simpler terms, investors have been rewarding companies that appear directly connected to the AI boom, while skipping over sectors that look slower, steadier, or more defensive. Healthcare, despite its massive role in the economy, has been one of the sectors left behind.
That is one of the more interesting twists in today’s market. Healthcare is usually seen as a defensive sector, the kind investors often turn to when economic uncertainty rises. But in a market dominated by AI excitement, even defensive quality has not been enough to command investor attention.
Healthcare May Be Turning Into a Value Sector
This is where the story becomes more interesting for long-term investors. Jared Holz, a healthcare strategist at Mizuho Americas, has argued that the healthcare sector has effectively become a value sector. His reasoning is straightforward. After years of investors crowding into technology and AI-related stocks, healthcare valuations have become more reasonable, while expectations for many healthcare companies have fallen.
That combination matters. In the stock market, a sector does not always need perfect conditions to perform well. Sometimes, it only needs expectations to become low enough. When a sector is ignored for years, valuations can compress, investor sentiment can weaken, and even solid companies can trade below what analysts believe they are worth. That appears to be the situation now for several healthcare stocks with strong analyst upside potential.
For investors looking for healthcare stocks with high upside, Wall Street analyst stock picks, top healthcare stocks for 2026, and value stocks in the healthcare sector, the current setup may be worth studying closely. The sector’s underperformance has created a market where some healthcare companies may now offer more attractive risk-reward profiles than they did during periods when investors were more enthusiastic.
Healthcare has always been a broad sector. It includes pharmaceutical companies, biotechnology firms, hospital operators, managed care companies, diagnostics businesses, medical technology companies, life sciences tools providers, and healthcare services firms. Some of these companies are defensive and cash-generating. Others are higher-risk, catalyst-driven names tied to drug approvals, clinical trial results, regulatory decisions, and product launches. That mix gives investors several ways to approach the sector, depending on their risk appetite.
Why Wall Street Is Starting to Look Again
The renewed interest in healthcare stocks is not just about cheap valuations. It is also about history. SentimenTrader’s Jay Kaeppel has advised investors to put healthcare back on the radar, noting that the sector has rarely performed this poorly relative to the S&P 500. His view suggests that healthcare’s weak year-to-date showing may not be a reason to ignore the sector, but rather a reason to examine whether a rebound is becoming more likely.
That does not mean every healthcare stock is a bargain. It also does not mean investors should blindly buy the sector just because it has lagged. Healthcare investing can be complicated. Drugmakers face patent cliffs. Biotech companies face clinical trial risk. Medical device companies can be affected by hospital spending cycles. Managed care companies can be pressured by regulation, reimbursement trends, and utilization costs. Even large healthcare companies can struggle when policy uncertainty rises or growth expectations fall.
Still, the sector’s current position is hard to dismiss. Healthcare stocks have underperformed for several years, valuations appear more reasonable, and analyst price targets suggest that select names may have significant upside from current levels. For investors who believe the AI trade has become crowded, healthcare may offer a different kind of opportunity: less flashy, less crowded, but potentially more attractively priced.
There is also a useful bit of market trivia here. Healthcare is one of the few sectors that can be both defensive and innovative at the same time. A pharmaceutical company may generate steady revenue from established medicines while also developing next-generation therapies. A medical device company may serve everyday hospital demand while also introducing advanced technologies that improve surgery, imaging, or patient monitoring. A biotech company may look speculative today but become highly valuable if a major treatment succeeds. That is why healthcare often attracts both conservative investors and aggressive growth investors, even though they may be looking at very different types of companies.
The Sector Nobody Wanted May Now Be the One to Watch
The irony is that healthcare’s weakness may be exactly what makes it interesting now. Wall Street has spent years focusing on AI stocks, semiconductor stocks, mega-cap technology names, and companies tied to the digital infrastructure boom. Meanwhile, many healthcare stocks have been quietly reset. Expectations have moved lower. Valuations have become more reasonable. Analysts are starting to identify names with large upside potential. And the sector’s poor relative performance has become difficult to ignore.
For investors searching Google for the most promising healthcare stocks, best healthcare stocks according to Wall Street analysts, healthcare stocks with upside potential, undervalued biotech stocks, top pharmaceutical stocks, and healthcare stocks to buy now, the current market backdrop creates an important question: has healthcare been forgotten for too long?
That is the central idea behind this article. The healthcare sector is not suddenly risk-free, and not every beaten-down stock deserves a second look. But after three consecutive years of lagging the broader market and another weak start in 2026, the sector now sits in a position where Wall Street analysts see meaningful upside in select names. In a market where many investors are still chasing AI-linked winners, healthcare may offer something different: a mix of value, defensiveness, innovation, and recovery potential.
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Our Methodology
In order to come up with our list of the top 10 healthcare stocks that could turn a $1,000 investment into something bigger, we used the Finviz stock screener to identify US-listed healthcare stocks with average analyst price targets at least 50% above their current share prices as of June 16, 2026, reviewed hedge fund ownership in Q1 2026 for added institutional context, and ranked the final list in ascending order of implied upside potential.
Top 10 Healthcare Stocks That Could Turn a $1000 Investment Into Something Bigger
8. Rhythm Pharmaceuticals Inc. (NASDAQ:RYTM)
Stock Upside: 58.52%
Market Capitalization: $6.13 billion
Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM) takes the eighth spot on this list of the most promising healthcare stocks according to Wall Street analysts, and unlike broad healthcare giants, this company is built around a more specialized but emotionally powerful treatment area: rare genetic diseases of obesity. Trading at $96.79, with the stock up 1.00%, Rhythm Pharmaceuticals, Inc. (NASDAQ) has a market capitalization of $6.13 billion, a stock upside of 58.52%, and 47 hedge fund holders as of Q1 2026. For investors searching for rare disease stocks, biotech stocks with upside, obesity treatment stocks, genetic disease stocks, and healthcare stocks to buy now, Rhythm offers a story that sits at the intersection of endocrinology, obesity medicine, and rare genetic disorders.
On June 13, Rhythm Pharmaceuticals, Inc. (NASDAQ) shared preliminary results from its ongoing Phase 2 trial of setmelanotide for Prader-Willi syndrome, or PWS, during the Endocrine Society’s Annual Meeting in Chicago. That is a meaningful venue for this type of data because endocrinology sits at the center of hormones, metabolism, appetite regulation, and obesity science. In the trial, Rhythm said setmelanotide showed meaningful improvements in weight, body composition, hunger, and behavioral outcomes. For a typical obesity drug, weight-loss data may be enough to attract attention. But for Prader-Willi syndrome, the story is more complicated because the condition is not simply about weight. It is about a severe genetic disorder that can create relentless hunger, behavioral challenges, and long-term health risks beginning early in life.
Prader-Willi syndrome is rare, but for families affected by it, the condition can be overwhelming. It often causes a near-constant sense of hunger that begins in childhood, along with severe obesity and behavioral or emotional difficulties. This hunger, known clinically as hyperphagia, is not the same as ordinary appetite. It can be intense, persistent, and extremely difficult to manage. That is why treatments targeting PWS are watched closely by physicians, families, and biotech investors. There are still very few therapies that can meaningfully address the underlying features of the condition, so any drug that improves hunger and weight-related outcomes can quickly become important.
According to Rhythm’s preliminary data, patients saw average BMI reductions of just over 3% at the six-month mark. The reductions were seen across both adult and pediatric patients, which is important because PWS affects individuals across age groups. The company also said setmelanotide produced meaningful improvement in excessive hunger, with 8 out of 10 patients who entered the trial with moderate to severe hyperphagia showing significant improvement in hunger scores. For investors looking at promising biotech stocks, these details matter because they suggest the drug may be doing more than producing modest weight movement. It may be affecting one of the core symptoms that makes PWS so difficult to treat.
Rhythm also reported that the safety profile of setmelanotide in this trial was consistent with what had already been established in prior studies. That matters because rare disease drug development is not only about efficacy. Safety becomes especially important when treating children, long-term metabolic disorders, or conditions that may require ongoing therapy. The company said the results give it confidence to move into a Phase 3 trial for PWS, which would be a larger and more rigorous study. For biotech investors, that transition from Phase 2 to Phase 3 is a major step because it moves a program closer to the kind of evidence regulators typically need for approval consideration.
Rhythm Pharmaceuticals, Inc. (NASDAQ) is already a commercial-stage biopharmaceutical company focused on therapies for rare genetic diseases of obesity. That focus gives it a differentiated place in the healthcare sector. The obesity treatment market has become one of the hottest areas in healthcare, especially because of the rise of GLP-1 drugs, but Rhythm is not simply competing in the mainstream weight-loss category. Its story is more targeted. It is focused on rare genetic obesity conditions where biology, appetite signaling, and unmet need create a very different treatment landscape.
For investors searching for the best healthcare stocks, biotech stocks with high upside, rare disease obesity stocks, and Wall Street analyst healthcare stock picks, Rhythm stands out because it has both a commercial rare-disease identity and a pipeline catalyst tied to Prader-Willi syndrome. With a 58.52% stock upside estimate and a $6.13 billion market capitalization, Rhythm is not a tiny speculative biotech, but it still carries the kind of clinical-catalyst profile that can attract attention when data improves. If the Phase 3 path confirms the early signals, Rhythm could remain one of the more closely watched rare disease healthcare stocks on Wall Street.
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Disclosure: No relevant interests to disclose. This article was originally published on BioTech HealthX.
