We recently published a list of 8 Most Promising Healthcare Stocks According to Hedge Funds. In this article, we are going to take a look at where Novartis AG (NYSE:NVS) stands against other most promising healthcare stocks according to hedge funds.
The Healthcare Sector: Growth, Innovation, and the Impact of AI
The healthcare sector depends on medical technology advancements, particularly devices used in disease prevention, diagnosis, and treatment. Unlike pharmaceuticals, medical devices work through physical or mechanical means rather than chemical processes. Key products include pacemakers, imaging equipment, dialysis machines, and implants.
In the US, the healthcare sector is flourishing. According to a recent estimate, the country’s healthcare spending increased by 7.5% in 2023, above the nominal GDP growth rate for the same year. A record 93.1% of Americans now have health insurance, which helped fuel last year’s sharp increase in healthcare spending. The country’s national healthcare spending is expected to increase at an average rate of 5.6% between 2023 and 2032, above the 4.3% growth predicted for GDP.
Additionally, the industry is growing quickly on a global scale. According to recent McKinsey projections, healthcare profits would increase at a compound annual growth rate (CAGR) of 7% from $583 billion in 2022 to over $800 billion by 2027. Although labor shortages and rising inflation rates continued to pressure the business in 2023, a good risk-reward climate in the sector is expected to make 2024 a year of recovery. According to the American investment firm, the events of 2023 have produced an alluring opportunity for investors to engage in the healthcare industry.
According to research published this month by Silicon Valley Bank, investments in artificial intelligence (AI) in the healthcare sector have also increased dramatically in recent years, expanding at a rate twice as fast as the IT sector. According to the report, businesses using AI account for one out of every four dollars spent in the healthcare industry. The Silicon Valley Bank anticipates that over $11 billion will be spent in the AI healthcare industry this year, with an estimated $2.8 billion already invested in 2024.
Investor confidence in the healthcare industry is still high, according to Deloitte’s 2024 Global Health Care Sector Outlook. The industry received $31.5 billion in private equity funding between 2019 and 2022. Over the next five years, the United States healthcare sector might save almost $360 billion thanks to the numerous businesses integrating artificial intelligence into their operations. Shortly, AI is probably going to have a big impact on medical administration, diagnosis, treatment, and patient care. Predictive analytics and health record automation are expected to further improve the effectiveness of healthcare providers and their offerings.
In recent months, growing economic uncertainty has prompted a shift toward more defensive stocks, with healthcare emerging as a key beneficiary. The broader market’s healthcare sector has surged by over 3.6% and in the past year, it has returned over 11%. In view of this, we will take a look at some of the most promising stocks from the healthcare sector.
Our Methodology
For our methodology, we picked the most weighted stocks from the iShares Global Healthcare ETF and then ranked them based on their total number of hedge fund holders as of Q3 2024, as tracked by the Insider Monkey database.
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).
A doctor holding a microscope in front of a laboratory sample of healthcare products.
Novartis AG (NYSE:NVS)
Number of Hedge Fund Holders: 24
Novartis AG (NYSE:NVS) is a global pharmaceutical company that develops, manufactures, and sells innovative medicines to address various medical needs. The company focuses on creating treatments for a wide range of conditions, including cardiovascular diseases, cancer, neurological disorders, and immunological diseases.
According to Wall Street analysts, products like Kesimpta, Kisgali, and Cosentyx should help the company’s revenue and core operating income expand in the next quarters. Additionally, Novartis AG (NYSE: NVS) is still confident in its creative pipeline and capital allocation plan. The business expects to surpass the peak revenue projection for Cosentyx, Kesimpta, and Entresto, even as it continues to diversify its portfolio with FDA applications.
Novartis AG (NYSE: NVS) expects protection into the mid to late 2030s and has been developing its medication, canalumab, for other immunological diseases. Operating income (continued operations) for the company was $4 billion in Q2 2024, representing a 47% increase on a constant currency basis. Greater net sales and fewer impairments drove this gain, which was partially offset by greater R&D expenditures.
Novartis AG (NYSE: NVS) anticipates a mid-to-high teens increase in core operating income and a high single to low double-digit growth in net sales for FY 2024. As of Q3 2024, 24 hedge funds in the Insider Monkey database held shares in the stock.
Aristotle Capital Management, LLC, an investment management company, released its second-quarter 2024 investor letter. Here is what the fund said about Novartis AG (NYSE: NVS):
“We have been investors in the Swiss pharmaceutical company Novartis AG (NYSE:NVS) for over a decade, having first purchased shares in 2011. During our holding period, the company has undergone significant changes. Vasant (“Vas”) Narasimhan was promoted to CEO in 2018 and, we believe, has positively influenced the company’s culture and helped shift the business more toward innovative medicines. Examples include the sale of Novartis’s consumer (over-the-counter) joint venture; the divestiture of its vaccines and animal health businesses; the spinoff of Alcon, a global leader in the treatment of eye diseases and eye conditions (also an International Equity holding); and most recently, the spinoff of generics manufacturer Sandoz. As part of its portfolio transformation, Novartis has been able to improve its margins and gain a share of branded pharmaceuticals. With many catalysts having neared completion, we decided to sell Novartis to fund the purchase of what we believe is a more optimal investment in Roche.”
Overall, NVS ranks 8th on our list of most promising healthcare stocks according to hedge funds. While we acknowledge the potential of healthcare companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than NVS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
