We recently published a list of 15 Small-Cap Healthcare Stocks Hedge Funds Are Buying. In this article, we are going to take a look at where Illumina, Inc. (NASDAQ:ILMN) stands against other small-cap healthcare stocks hedge funds are buying.
The U.S. healthcare sector has performed better in 2025 compared to the broader market. After two years of weak performance, the healthcare sector kicked off on a strong note in 2025. In a letter from Federated Hermes, within the S&P 500, the healthcare sector soared nearly 2.59% as of April 30. Whereas the Information Technology sector reported an 11.24% loss, the Consumer Discretionary sector was down 14.08%, and the S&P 500 recorded a 4.92% decline as a whole.
As inflation eases, things will be better economically for the healthcare sector. The Investment Director of Federated Hermes, Jordan Stuart, mentioned that when inflation has eased historically, healthcare stocks have performed better. Stuart added:
“Typically, healthcare stocks underperform when inflation is high due to increased costs and pricing pressures. However, inflation has, ever so slowly, begun to decline again, and optimism around rate cuts has resurfaced, giving life back to healthcare stocks. This shift in economic conditions will likely enhance the attractiveness of health care investments, as lower inflation and interest rates create a more favourable environment for growth and profitability.”
According to BlackRock, an average of 75% of healthcare companies exceeded earnings expectations in the first three quarters of 2024. This led to an improved local investor sentiment, with nearly $80 million of inflows to the iShares Global Healthcare ETF (IXJ) in 2024. BlackRock expects the 2025 projected earnings in the healthcare sector to rebound even further, recording the highest year-over-year growth in 18 years, excluding the COVID-19 period.
The U.S. healthcare sector now accounts for a fifth of the U.S. economy. With digital transformation, non-acute care shifts, and innovation in biosimilars and speciality drugs, the healthcare sector remains poised for growth in 2025. According to SNS Insider Research, the healthcare market is expected to reach $44.76 trillion in 2032 from $21.22 trillion reported in 2023. This marks a CAGR of 9.07% between 2024 and 2032. North America accounts for almost 44% of the global healthcare market share.
Trump’s tariffs remain a major hurdle for healthcare, and they may threaten around a 10-15% cost increase for drugs and medical devices, as per Forbes. According to the Medical Device Network, around 69% of the U.S.-marketed medical devices are manufactured outside of the U.S.
David Risinger from Leerink Partners highlighted that potential tariffs would likely drive the U.S. drug prices, even though the companies moved their production to the U.S. Reducing costs with domestic production could take years, added Risinger. Reportedly, President Trump is expected to sign an executive order to slash U.S. prescription drug prices. The President plans to match drug prices overseas and control the price hike anticipated by analysts.
Lately, the U.S. government has been striving to make trade deals with its partners. After talks between the U.S. and China, both countries have decided to slash tariffs for 90 days, with duties set to drop by 115 percentage points. This move will drop American tariffs on Chinese goods to as low as 30%, and China’s retaliatory duties will go down from 125% to 10%.
To compile the list of the 15 small-cap healthcare stocks hedge funds are buying, we used the Finviz screener to shortlist healthcare stocks that are trading at a market cap of at least $10 billion. For this article, we are defining small-cap stocks as those that trade between $10 billion and $20 billion. We have ranked the stocks in ascending order of the number of hedge fund holders. Data for the number of hedge fund investors for each stock was taken from Insider Monkey’s database, updated as of Q4 2024. In cases where two or more stocks were held by an equal number of hedge funds, we used the upside potential as a tiebreaker. The analysts’ upside potential data is taken from CNN. Please note that the data was collected on May 13, 2025.
Why are we interested in the stocks that hedge funds and billionaire investors pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Illumina, Inc. (ILMN): Among Small-Cap Healthcare Stocks Hedge Funds is Buying
A research facility with medical professionals surrounded by diagnostic equipment.
No. of Hedge Fund Holders: 61
Market Capitalization: $12.83 Billion
Analyst Upside: 23.18%
Illumina, Inc. (NASDAQ:ILMN) is a global healthcare firm engaged in providing sequencing and array-based solutions for genetic and genomic analysis. Illumina serves customers in various markets, allowing the adoption of genomic solutions in research and clinical settings.
Illumina, Inc. (NASDAQ:ILMN) had a promising development after the SEC dropped enforcement action on the company after concluding the investigation related to the acquisition of Grail in 2021. The company spun off Grail in 2024, following difficult times in which regulators had challenged the $8 billion takeover. This is a major development as the company can now fully focus on finding local partnerships to mitigate the Chinese ban, which has impacted Illumina’s sales by almost 7%.
On May 10, Daniel Arias from Stifel lowered the price target on ILMN from $160 to $135, maintaining a Buy rating on the shares. Arias pointed out the reduced full-year 2025 earnings guidance to be a key factor in lowering the price. Arias pointed out that the cut to the top line “was maybe a point or so deeper than we thought it might be, but the EPS outlook is better than the firm anticipated thanks to strong mitigation activities.” The management expects the EPS to be around $4.20 to $4.30, down from the previous guidance of $4.50 per share.
Overall, ILMN ranks 4th on our list of small-cap healthcare stocks hedge funds are buying. While we acknowledge the potential of ILMN to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. There is an AI stock that has gone up since the beginning of 2025, while popular AI stocks have lost around 25%. If you are looking for an AI stock that is more promising than ILMN but that trades at less than 5 times its earnings, check out our report about this cheapest AI stock.
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