In this article, we list the 10 best health insurance stocks to buy.
The Healthcare Market: What does the future hold?
2023 posed significant challenges for the healthcare sector as investors adjusted their portfolios to adapt to a higher interest rate environment. This led to the sector underperforming compared to other segments of the equity market, particularly technology and communication services. The disruptive environment has understandably created some anxiety and pessimism about the future. Deloitte’s annual Health Care Outlook Survey reveals that only 3% of health system executives and 7% of health plan executives have a “positive” outlook for 2024, down from 15% and 40%, respectively, marking a significant year-over-year decline.
On the brighter side, the aging baby boomer generation, which constitutes 20% of the U.S. population, is driving a growing demand for healthcare services and products such as insurance, pharmaceuticals, medical devices, and hospital care. Projections indicate a notable increase in healthcare spending over the next decade. In the U.S., the Centers for Medicare & Medicaid Services forecasts a 5.6% annual growth in national health expenditure between 2023 and 2032. Similarly, in OECD countries, healthcare spending as a percentage of GDP is expected to rise from 8.8% to 10.2% by 2030. Alongside aging populations, the expanding middle class in emerging markets will also contribute to heightened demand for healthcare services.
One of the biggest news stories of the year was the rise of GLP-1 drugs as weight loss treatments, leading to significant outperformance by leading developers Eli Lilly & Company and Novo Nordisk (NVO) compared to their peers. Conversely, many companies experienced a severe downturn due to the post-COVID revenue drop, after vaccine and therapeutic sales neared $100 billion in 2022, resulting in challenging year-over-year comparisons. On another front, BlackRock, Inc. projects that the healthcare sector will have the highest 12-month forward earnings growth across all sectors on a year-on-year basis, with sales growth trailing only the consumer discretionary and information technology sectors.
The State of Health Insurance
Health insurance remains a prominent issue, especially in the United States. In 2022, over 300 million Americans, approximately 92% of the population, had health insurance. While the U.S. healthcare system features a blend of public and private insurers, private insurance comes out on top as the predominant form of coverage. That same year, more than half of insured individuals received private insurance through their employer, while approximately 36% were covered by public insurance programs like Medicare and Medicaid.
As of 2023, the US health insurance exchanges, created under the Affordable Care Act in 2014, market their tenth year of operation. Throughout this decade, the individual market has remained interesting, to say the least, having experienced annual fluctuations in insurer participation, pricing, and plan options. According to McKinsey, consumer engagement significantly increased by 25% from 2020 to 2022, reaching approximately 16 million participants, thus aligning with the enhanced subsidies introduced by the American Rescue Plan Act of 2021.
The global health insurance industry is poised for substantial growth in the coming years. According to a report, the global health insurance market is projected to achieve a Compound Annual Growth Rate (CAGR) of 9.9% from 2022 to 2030, reaching a market value of $5.28 trillion by 2030.
Insurance house, car and family health live concept. The insurance agent presents the toys that symbolize the coverage.
Our Methodology
To compile our list of the best health insurance stocks to buy, we sifted through multiple ETFs and internet rankings. We then analyzed Insider Monkey’s Q1 2024 database to select the stocks that were the most widely held by hedge funds. The following companies, ranked by the number of hedge funds holding their shares, provide health insurance services within the United States and/or internationally. Why do we care about what hedge funds do? 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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Best Health Insurance Stocks to Buy
10. MetLife, Inc. (NYSE:MET)
Number of Hedge Fund Holders: 36
The Metropolitan Life Insurance Company, widely known as MetLife Inc. (NYSE:MET), stands as one of the world’s largest providers of insurance, annuities, and employee benefit programs, serving over 90 million customers across more than 60 countries.
Recently, MetLife Inc. (NYSE:MET) announced a substantial increase in its share repurchase authorization to $3 billion, reflecting a strong first quarter in 2024. The company reported a 20% year-over-year rise in adjusted earnings, reaching $1.3 billion or $1.83 per share. Adjusted premium fees and other revenues totaled $12 billion, marking a 4% growth compared to the same quarter the previous year.
Piper Sandler revised its outlook on MetLife Inc. (NYSE:MET) shares, lowering the price target to $82 from $85 while maintaining an Overweight rating. This adjustment follows an increase in Group Benefits claims, particularly in dental, a trend observed industry-wide this earnings season. Piper Sandler noted that excluding the impact of these heightened claims, MetLife Inc. (NYSE:MET)’s earnings were consistent with projections.
Hedge fund sentiment towards MetLife Inc. (NYSE:MET) appears positive, with 36 funds holding significant stakes in the company as of Q1 2024. The hedge fund with the largest position in MET is Richard S. Pzena’s Pzena Investment Management.
9. Chubb Limited (NYSE:CB)
Number of Hedge Fund Holders: 53
Chubb Limited (NYSE:CB) is a global insurance corporation offering a wide range of insurance and reinsurance products to individuals, businesses, and other entities worldwide. In the first quarter, the company reported robust financial results, surpassing analyst expectations with earnings per share of $5.41, which was $0.10 higher than the consensus estimate of $5.31. Chubb’s revenue reached $12.22 billion, exceeding the analyst forecast of $11.75 billion. Despite the positive results, the stock traded flat after-hours.
The insurer also reported a 13.3% increase in net income to $2.14 billion and a 20.3% rise in core operating income to $2.22 billion. These improvements were partially influenced by two one-time items: a $55 million deferred tax benefit related to Bermuda tax law and a $30 million contribution to the Chubb Charitable Foundation.
Additionally, Warren Buffett’s Berkshire Hathaway revealed a significant investment in Chubb Limited (NYSE:CB). The conglomerate purchased nearly 26 million shares of the Zurich-based insurer, a stake worth $6.7 billion, making it Berkshire’s ninth-largest holding as of the end of March. Following the news of Berkshire’s investment, shares of Chubb Limited (NYSE:CB) jumped nearly 7% in extended trading. The stock has gained approximately 16.5% year to date.
Out of the 919 hedge funds tracked by Insider Monkey, 53 reported owning stock in Chubb Limited (NYSE:CB) as of Q1 2024. Millennium Management was among the leading hedge fund investors in the company, with a stake worth over $54.9 million
8. CVS Health Corporation (NYSE:CVS)
Number of Hedge Fund Holders: 54
CVS Health Corporation (NYSE:CVS) is a U.S.-based healthcare enterprise that manages an extensive network of retail pharmacies and clinics across the country. The corporation oversees various brands, including CVS Pharmacy, a retail pharmacy chain; CVS Caremark, a pharmacy benefits manager; and Aetna, a health insurance provider.
In early May, Argus revised its stock price target for CVS Health Corporation (NYSE:CVS), lowering it to $80 from the previous $100 while maintaining a Buy rating. This adjustment followed CVS Health’s first-quarter earnings for 2024, which fell short of market expectations and led the company to revise its guidance downward. The new earnings per share forecast for 2024 is set at “at least $7.00,” down from the “at least $8.30” projected in February and the “at least $8.50” anticipated during the Investor Day in December.
The company experienced higher-than-anticipated usage in the Medicare Advantage plans offered through its Health Care Benefits segment. As a result, CVS now projects its adjusted operating income for 2024 to be at least $14.75 billion, down from the $16.9 billion estimate provided in February and the initial $17.24 billion outlook from December.
Additionally, on May 23, CVS Health Corporation (NYSE:CVS) saw its shares decline by as much as 3% following an unconfirmed report that the company was seeking a private equity (PE) partnership to expand its Oak Street Health platform. According to the report, CVS Health Corporation (NYSE:CVS) may pursue a partnership similar to Humana’s with Welsh Carson, where CVS would initially take a minority interest in new clinics with an option to purchase once they are established. Analysts and RBC Capital Markets, however, believe that Oak Street clinics will reach break-even by year three or four and mature with $6-7 million in clinic-level profit by year six, protecting CVS from startup losses during the clinics’ early years.
Ariel Global Fund stated the following regarding CVS Health Corporation (NYSE:CVS) in its first quarter 2024 investor letter:
“We bought American healthcare company, CVS Health Corporation (NYSE:CVS), following recent concerns related to potential new laws affecting Pharmacy Benefit Managers (PBMs)—intermediaries that negotiate drug prices between insurers and pharmacies—and issues with pricing in its Medicare Advantage plans, a type of health insurance for senior citizens. Shares presented an attractive entry point after the company lowered its 2024 outlook. While investor apprehension regarding the new laws appears to have eased, utilization of Medicare Advantage plans is also stabilizing. Our purchase of CVS reflects our efforts to capitalize on temporary setbacks and secure positions in companies poised for a rebound.”
7. Centene Corporation (NYSE:CNC)
Number of Hedge Fund Holders: 56
Centene Corporation (NYSE:CNC), based in St. Louis, Missouri, is a publicly traded managed care firm that acts as an intermediary for both government-sponsored and privately insured healthcare programs. The company primarily focuses on the Medicaid market, with a significant portion of its membership coming from programs like the Children’s Health Insurance Program (CHIP) and Temporary Assistance for Needy Families (TANF).
Centene Corporation (NYSE:CNC) reported first-quarter profits of $1.1 billion, driven by an increase in membership and premium revenue, thanks to a significant rise in Obamacare enrollment. The company’s net income exceeded Wall Street analysts’ expectations, reaching $1.16 billion, or $2.16 per share, compared to $1.13 billion, or $2.04 per share, in the same quarter last year, while total revenue increased to $40.4 billion from $38.9 billion year-over-year.
Centene Corporation (NYSE:CNC) also raised its 2024 diluted earnings per share guidance floor to more than $5.94 and its adjusted diluted EPS guidance floor to more than $6.80. The growth in the commercial marketplace, particularly Obamacare, contributed to a 4% increase in “premium and service revenues,” which rose to $36.3 billion from $35.0 billion in the first quarter of 2023.
Among the largest hedge fund shareholders of Centene Corporation (NYSE:CNC) is Harris Associates, holding shares valued at $1.33 billion.
Oakmark Global Fund stated the following regarding Centene Corporation (NYSE:CNC) in its first quarter 2024 investor letter:
“Centene Corporation (NYSE:CNC) is a large health insurer specializing in three major government-sponsored programs: Medicaid, Marketplace and Medicare Advantage. Each of these programs benefits from long-term secular tailwinds. In Medicaid, states are steadily outsourcing their programs to managed care companies like Centene to help reduce costs and improve care quality. Managed Medicaid penetration has increased meaningfully over the past two decades, and we expect further gains over time. In Marketplace, growth is driven by the trend toward more individuals buying health insurance. Centene holds the top market share in both of these programs and is well-positioned to capitalize on their continued growth. Finally, in Centene’s Medicare Advantage business, past missteps will result in losses next year, but we believe Centene can turn its Medicare Advantage segment around and generate positive earnings in the next few years. Centene currently trades for about 9x our estimate of normal earnings power, which we believe is a compelling value for a business that generates healthy returns on capital and is capable of growing EPS at a low double-digit rate.”
6. The Cigna Group (NYSE:CI)
Number of Hedge Fund Holders: 61
The Cigna Group (NYSE:CI) and its subsidiaries specialize in offering insurance and related products and services in the United States. The company also provides pharmacy benefits, home delivery pharmacy, and specialty pharmacy distribution services.
The Cigna Group (NYSE:CI) reported a notable first-quarter, with sales of $57.26 billion, a 23% year-over-year increase, surpassing the consensus estimate of $55.47 billion. This growth was primarily driven by substantial gains in Evernorth Health Services, reflecting multiple large client acquisitions. Adjusted income from operations rose 16% to $1.88 billion, with strong contributions from both Cigna Healthcare and Evernorth Health Services. Cigna Healthcare sales increased 4% year-over-year to $13.3 billion, reflecting premium rate adjustments.
Following The Cigna Group (NYSE:CI)’s strong first-quarter financial results, RBC Capital Markets slightly raised its price target for CI shares to $384 from $383, while maintaining an Outperform rating. RBC’s assessment was also influenced by Cigna’s recent investor day, during which the company raised its long-term growth targets to a range of 10-14%, a projection RBC believes is justified based on The Cigna Group (NYSE:CI)’s current performance and trajectory.
Hedge fund sentiment towards The Cigna Group (NYSE:CI) appears positive, with 61 funds holding significant stakes in the company as of Q1 2024. The largest position is held by Glenview Capital, which owns 1.47 million shares valued at $534.3 million.
Here is what Davis New York Venture Fund has to say about The Cigna Group (NYSE:CI) in its Q3 2023 investor letter:
“In the attractive healthcare sector, we look beyond the obvious to identify businesses that simultaneously have exposure to this growth industry and also trade at low prices. We’re especially drawn to companies like Cigna Group, whose products or services play a part in helping to mitigate healthcare’s constantly rising costs. The healthcare industry has been a growing part of the U.S. economy for decades. As a result, many companies in this sector trade at high valuations reflecting their robust but well-known reputation for growth. For value-conscious investors like us, investing in healthcare requires looking beyond the obvious to identify businesses that have exposure to this growth industry but which trade at low prices. Furthermore, recognizing that the constantly rising cost of healthcare cannot go on forever, we have been particularly drawn to companies whose products or services play some role in managing or reducing the cost of care. As a result, we have positions in Cigna Group, a well-regarded provider of managed care.