The year 2023 has presented significant challenges for the healthcare sector as investors adjusted their portfolios to the higher interest rate environment. This has caused the sector to underperform compared to other segments of the equity market, particularly technology and communications services. As expected, the disruptive environment has led to some fear and pessimism about the future. Deloitte’s annual Healthcare Outlook Survey shows that only 3% of healthcare executives and 7% of healthcare leaders have a “positive” outlook for 2024, down from 15% and 40% respectively, a significant decline from the previous year.
On the other hand, the aging baby boomer generation, which makes up 20% of the U.S. population, is driving growing demand for healthcare services and products such as insurance, pharmaceuticals, medical devices and hospital care. Forecasts point to a significant increase in healthcare costs over the next decade. In the US, the Centers for Medicare and Medicaid Services projects annual healthcare spending growth of 5.6% from 2023 to 2032. Also in OECD countries, healthcare spending as a share of GDP is expected to rise from 8.8% to 10.2% by 2030. Along with an ageing population, the expansion of the middle class in emerging markets will increase demand for healthcare services.
One of the biggest news stories of the year was the rising popularity of GLP-1 drugs as weight-loss agents, resulting in leading developers Eli Lilly & Company and Novo Nordisk (NVO) significantly outperforming their competitors. In contrast, many companies have suffered severe setbacks due to declining revenues following the COVID crisis, as vaccine and therapeutics sales approached the $100 billion mark in 2022, leading to difficult year-on-year comparisons. On the other hand, BlackRock, Inc. forecasts that the healthcare sector will have the highest year-on-year 12-month earnings growth of any sector, with revenue growth lagging only behind the consumer staples and information technology sectors.
The top 5 health insurance stocks to purchase are listed below:
5. HCA Healthcare, Inc. (NYSE:HCA)
- Number of Hedge Fund Holders: 72
Founded in 1968, HCA Healthcare, Inc. (NYSE:HCA) is a leading healthcare services provider known for its extensive network that owns and operates 182 hospitals and approximately 2,300 outpatient facilities. These facilities include surgery centers, stand-alone emergency departments, urgent care centers, and physician offices.
HCA Healthcare, Inc. (NYSE:HCA) had a remarkable first quarter of 2024, with strong financial results and significant growth in hospitalizations, surgeries, and emergency department visits. Although outpatient surgery revenue declined, the company’s adjusted earnings per share rose to $5.36, representing growth of nearly 9%. Adjusted EBITDA increased 5.7% year over year to $3.35 billion.
Due to these developments, TD Cowen revised its financial outlook for HCA, lowering its price target to $360 from the previous $371, but maintained a Buy rating. This revision, reflecting the first quarter results and expected weakening trends, prompted TD Cowen to adjust its EBITDA forecast for HCA Healthcare, Inc. (NYSE:HCA) in 2024 and 2025, as well as its 2025 enterprise value before EBITDA less its target multiple to enterprise earnings.
In the first quarter of 2024, 72 hedge funds held positions in HCA Healthcare, Inc. (NYSE:HCA). The fund with the largest holding was First Eagle Investment Management with 4.5 million shares, representing 3.41% of its portfolio.
4. Humana Inc. (NYSE:HUM)
- Number of Hedge Fund Holders: 74
Humana Inc. (NYSE:HUM) is dedicated to improving health and well-being by providing healthcare benefits to its medical and specialty members. Its extensive range of benefits includes fully insured medical and specialty health insurance benefits such as vision, dental and supplemental health benefits, as well as administrative services only (ASO) products for individuals and employer groups. Additionally, the company offers customized healthcare services for retired and active military members and their dependents.
Cantor Fitzgerald recently revised its price target on Humana Inc. (NYSE:HUM) to $360 from the target of $391 set in April, while keeping the stock’s rating Neutral. The revision follows Humana’s first-quarter earnings report that beat financial expectations. Humana reported first-quarter 2024 earnings per share of $7.23, beating the FactSet consensus of $6.12. The company’s revenue reached $29.6 billion, beating Humana Inc.’s expectations of $28.5 billion. (NYSE:HUM), the benchmark for the amount spent on medical claims relative to premiums collected was 89.3%, slightly above the consensus estimate of 88.9%.
Despite these positive results, concerns remain over the lack of clarity about the company’s 2025 outlook and the degree of conservatism in its backup assumptions. Analysts at Cantor Fitzgerald noted that Humana Inc. (NYSE:HUM) maintained its full-year MLR rate at 90% and EPS guidance at around $16, but there remains some uncertainty regarding the new 2025 guidance.
3. Elevance Health, Inc. (NYSE:ELV)
- Number of Hedge Fund Holders: 79
Formerly known as Anthem, Inc., Elevance Health, Inc. (NYSE:ELV) is a health insurance company that operates in the United States through its subsidiaries. The company operates Blue Cross and Blue Shield plans in 14 states and is licensed to sell health insurance nationwide. Elevance offers a variety of health insurance plans, including employer-sponsored and individual plans, Medicare Advantage, Medicare Supplement, and Medicaid.
In early April, Mizuho Securities revised its financial outlook for Elevance Health, Inc. (NYSE:ELV), raising its price target to $585 from $575 previously while maintaining a Buy rating. The decision follows a review of Elevance Health, Inc. (NYSE:ELV)’s adjusted earnings per share estimates for the coming years. Mizuho raised its adjusted EPS estimates for Elevance Health, Inc. (NYSE:ELV) to $37.30 for 2024 and $41.60 for 2025, an increase of $0.10. However, the company’s EPS forecast for 2026 remained unchanged at $46.35, suggesting 11% year-over-year growth. In addition, the Mizuho Medical Loss Ratio (MLR) estimate for Elevance Health, Inc. (NYSE:ELV) was 87.0% for 2024, supported by a first-quarter MLR of 85.6%, which was in line with expectations. Recent collaborations with Elevance Health, Inc. (NYSE:ELV) with private equity firm Clayton, Dubilier & Rice (CD&R) also seek to expand primary care services, a move Mizuho views positively as it complements the company’s existing value-based healthcare and primary care offerings.
2. The Progressive Corporation (NYSE:PGR)
- Number of hedge fund holders: 85
The Progressive Corporation (NYSE:PGR) is a leading American insurance company that provides auto and health insurance solutions. By the end of 2022, Progressive became the largest auto insurer in the United States. The company was founded in 1937 by Jack Green and Joseph M. Lewis.
BMO Capital Markets has reaffirmed its positive outlook on The Progressive Corporation (NYSE:PGR) and maintained an Outperform rating with a $235.00 price target. The company reported unexpected organic growth in progressive passenger auto insurance in May, in contrast to the typical seasonal slowdown as summer approaches. The growth prompted BMO Capital Markets to raise its earnings per share estimates for The Progressive Corporation (NYSE:PGR), although EPS missed in May due to high catastrophe losses.
1. UnitedHealth Group Incorporated (NYSE:UNH)
- Number of Hedge Fund Holders: 104
UnitedHealth Group Incorporated (NYSE:UNH), headquartered in Minnetonka, Minnesota, is a leading American multinational company specializing in managed healthcare services and insurance. It is a for-profit organization divided into four segments: UnitedHealthcare, Optum Health, Optum Insight, and Optum Rx.
Financial institutions are keeping a close eye on UnitedHealth Group Incorporated’s (NYSE:UNH) performance, with analysts forecasting continued growth and profitability. Notably, Piper Sandler recently maintained an “Overweight” rating on UNH shares, underscoring the company’s positive expansion prospects in the Medicare Advantage sector.
Despite its strong performance, UnitedHealth Group Incorporated (NYSE:UNH) faced challenges, including a cyberattack on its technology division that exploited a vulnerability in Citrix software. In addition, UnitedHealth Group Incorporated (NYSE:UNH) recently reported problems with Medicaid enrollment, leading to disruptions in reimbursement rates and an overall decline in health insurer stocks.
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