In this article, we will be taking a look at the 12 cheap healthcare stocks to buy heading into 2025.
The Resilience and Challenges of Global Healthcare Spending
Investing in healthcare equities is typically seen as protective during recessionary times. This is because, even in hard financial times, consumers usually do not reduce their usage of prescription drugs or other necessary healthcare services. National healthcare spending is expected to reach an estimated $4.8 trillion in 2023 and increase at a 5.6% annual pace between 2027 and 2032, according to the Centers for Medicare and Medicaid Services (CMS).
According to a World Health Organization report published in December 2023, worldwide healthcare spending reached a record high in 2021 at $9.8 trillion, or 10.3% of global GDP. Except in low-income countries, where government health spending declined as a result of their significant reliance on foreign aid, public health spending increased globally. While 11% of the world’s population lived in countries where yearly healthcare spending was less than $50 per person, high-income countries paid about $4,000 per capita in 2021. Additionally, low-income countries accounted for just 0.24% of global health spending, despite having 8% of the world’s population. The study claims that although public health spending rose dramatically during the peak of the COVID-19 epidemic, this increase is unlikely to last in the long term as countries now place a higher priority on economic problems such as high inflation, decreasing GDP, and mounting debt servicing. According to Dr. Bruce Aylward, WHO Assistant Director-General for Universal Health Coverage, Life Course:
“Sustained public financing on health is urgently needed to progress towards universal health coverage. It is especially critical at this time when the world is confronted by the climate crisis, conflicts, and other complex emergencies. People’s health and well-being need to be protected by resilient health systems that can also withstand these shocks.”
The impending collapse of the U.S. healthcare system, especially in terms of staff shortages and financial instability, is the most worrisome aspect of the healthcare sector. There is a serious manpower shortage in the healthcare sector. An additional 124,000 doctors are expected to be required by 2030, and by 2027, 800,000 registered nurses (RNs) are expected to retire. A startling 24% of staff registered nurses are currently leaving their jobs. In certain healthcare systems, this deficit has resulted in the shutdown of critical patient services like obstetrics, pediatrics, psychiatry, and intensive care units.
Nevertheless, the U.S. spends over twice as much on healthcare as the OECD average, despite these difficulties, and the average results are poorer. This discrepancy emphasizes how ineffective and unsustainable the current system is. Further taxing the revenue cycle and reducing the amount of money available for therapeutic treatments is the fact that 58% of hospital bad debt originates from insured patients. The future of the American healthcare system appears bleak when these elements are taken together. The industry faces a systemic collapse that could have serious repercussions for the economy and public health if substantial intervention and reform are not implemented.
A smiling healthcare professional, treating a patient with the PLEX platform.
Our Methodology
Our methodology involved selecting stocks with a market capitalization exceeding $10 billion and a price-to-earnings (P/E) ratio below 17. We then ranked these stocks based on their P/E ratios, as of December 22.
Why are we interested in the stocks that hedge funds 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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Here is our list of the 12 cheap healthcare stocks to buy heading into 2025.
12. Solventum Corporation (NYSE:SOLV)
P/E Ratio: 16.64
Standing twelfth among the cheap healthcare stocks to buy heading into 2025 is Solventum Corporation (NYSE:SOLV). It is a healthcare company that develops and manufactures solutions across four key segments: Medical Surgical (MedSurg), Dental Solutions, Health Information Systems, and Purification and Filtration. The MedSurg segment offers products like wound care, IV site management, sterilization tools, and surgical supplies. Its Dental Solutions include orthodontic products and restorative materials. The company’s Health Information Systems provides software for documentation, billing, coding, and data visualization to enhance clinical efficiency. In Purification and Filtration, Solventum Corporation (NYSE:SOLV) provides technologies to maintain hygiene and safety in healthcare settings.
To stabilize its operations, reposition for expansion, and optimize its portfolio, the company is putting a three-phase strategy into action. Phase 1 entails managing the company’s split from 3M while creating a new mission, hiring personnel, and restructuring for agility. The corporation is moving production lines from 67 factories to 29 Solventum plants as part of the separation, and two new facilities are being built.
Additionally, by cutting the number of distribution facilities from 122 to 73, Solventum Corporation (NYSE:SOLV) is reorganizing its supply chain and distribution. The management has modified commercial distribution patterns in more than 60 countries, and the rebranding initiatives are widespread, spanning more than 90 nations.
Solventum Corporation (NYSE:SOLV) reported $2.08 billion in revenue for the second quarter of 2024. Negative pressure wound therapy and antibacterial IV site management products were the main drivers of the MedSurg segment’s 1.8% annual growth. However, volume challenges from difficult market conditions caused a 2% loss in the Dental segment. The 360 Encompass and consistent performance management solutions drove the 3.6% growth in the HIS segment. Due to drinking water filtration performance, the Purification and Filtration segment had a minor decline of 0.9%.
11. United Therapeutics Corporation (NASDAQ:UTHR)
P/E Ratio: 16.41
United Therapeutics Corporation (NASDAQ:UTHR) is a biotechnology company focused on developing treatments for rare, life-threatening diseases, particularly cardiovascular disorders like pulmonary arterial hypertension (PAH) and pulmonary hypertension associated with interstitial lung disease (PH-ILD), as well as infectious diseases and pediatric oncology. The company produces pharmaceutical products such as prostacyclin analogs (Remodulin, Tyvaso, Orenitram) for PAH and PH-ILD, Adcirca (tadalafil) for PAH, and Unituxin (dinutuximab) for high-risk neuroblastoma in pediatric oncology.
United Therapeutics Corporation (UTHR) reported strong financial performance in Q3 2024, making it an attractive option for investors seeking affordable healthcare stocks. Revenue grew 23% year-over-year to $748.9 million, driven primarily by a 33% increase in Tyvaso sales, which reached $433.8 million. Other products, including Orenitram and Unituxin, also saw solid revenue growth, while Remodulin and Adcirca experienced slight declines. Net income rose 16% to $309.1 million, with diluted EPS increasing by 19% to $6.39. The growth was fueled by strong demand for pulmonary hypertension treatments, particularly Tyvaso, and the company expects key clinical and regulatory events in 2025 to further boost its growth prospects.
Analysts hold a consensus Moderate Buy rating on the stock. As of Q3 2024, 33 hedge funds held shares in the company as tracked by the Insider Monkey database. The largest shareholder in the company was VenBio Select Advisor with stakes worth $1.02 billion.
10. DaVita Inc. (NYSE:DVA)
P/E Ratio: 16.29
DaVita Inc. (NYSE:DVA) is a leading provider of kidney care services, specializing in dialysis treatments for chronic kidney disease and end-stage renal disease. The company operates dialysis centers across the U.S. and internationally, offering services like hemodialysis, peritoneal dialysis, pharmacy solutions, lab testing, and disease management. DaVita Inc. (NYSE:DVA)’s main customers are individuals needing dialysis, as well as healthcare providers, insurance companies, and government agencies seeking kidney care services.
DaVita Inc. (NYSE:DVA) has shown strong financial resilience in Q3 2024 despite challenges like supply chain disruptions and hurricanes. The company reported an adjusted operating income of $535 million, maintaining its full-year guidance of $1.91 billion to $2.01 billion. Adjusted EPS for Q3 was $2.59, with a full-year range of $9.25 to $10.05. Free cash flow reached $555 million, supporting its annual guidance of $950 million to $1.2 billion. Revenue per treatment (RPT) grew by 3.5% to 4%, despite flat treatment volumes.
DaVita Inc. (NYSE:DVA) managed operational challenges well, with minimal hurricane impact and ongoing efforts to control labor and medical costs. The corporation expects supply chain conditions to normalize by early 2025 and is preparing for a regulatory transition regarding oral-only drugs into Medicare Part B, which could enhance patient access and efficiency.
As of Q3 2024, 39 hedge funds held shares in the company as tracked by the Insider Monkey database. The largest shareholder in the stock was Berkshire Hathaway with stakes worth $5.9 billion.
