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 Novo Nordisk A/S (NYSE:NVO) 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).
An elderly couple receiving insulin from a pharmacist, representing healthcare company’s successful pharmaceutical products.
Novo Nordisk A/S (NYSE:NVO)
Number of Hedge Fund Holders: 61
Novo Nordisk A/S (NYSE:NVO) is a Danish pharmaceutical company that specializes in diabetes care and other chronic diseases. At its core, the company develops, produces, and markets innovative biological medicines. Its primary focus is on insulin products for diabetes treatment, but the company is also concentrated on growing its market share and improving the products it offers, especially in the treatment of diabetes and obesity.
At constant exchange rates, Novo Nordisk A/S (NYSE:NVO) had a remarkable sales growth of 25% in the first half of 2024, mostly due to rising demand for its GLP-1-based diabetic and obesity medicines. The company is effectively reaching more patients with cutting-edge treatments like Wegovy and Ozempic, as seen by the 36% growth in North American operations and the 11% growth in foreign operations. Additionally, Novo Nordisk is making progress in research and development, as seen by encouraging outcomes from clinical studies for medications targeted at diseases like cardiovascular risk and hemophilia A. It is among the most promising stocks in the healthcare sector.
Furthermore, Novo Nordisk A/S (NYSE:NVO) is successfully controlling supply and demand as it strategically introduces Wegovy, a weight-loss drug, into foreign markets. In the diabetes industry, the company has also significantly increased its market share, surpassing its target of one-third of the market by 2025 and currently holding a 34.1% worldwide value market share. The business exhibits a strong dedication to innovation with a solid product pipeline and current clinical studies.
Over the past five years, Novo Nordisk A/S (NYSE:NVO) has achieved an average annual growth rate of 17.17% in revenue and 19.06% in net income. As of Q3 2024, 61 hedge funds in the Insider Monkey database held shares in the company. Artisan Partners stated the following regarding Novo Nordisk A/S (NYSE:NVO) in its “Artisan Global Equity Fund” Q1 2024 investor letter:
“In addition, shares of Novo Nordisk A/S (NYSE:NVO) rose after it reported phase 1 clinical trial results for its new experimental obesity drug Amycretin, a single molecule that operates as a GLP-1 receptor agonist, reducing one’s appetite. The new oral treatment achieved a 13.1% average weight loss after 12 weeks, more than doubling the efficacy of Wegovy for the same period. This result also bested Lilly’s Orfoglipron, another experimental drug that achieved 5%–6% average weight loss earlier in its trials. While the Amycretin data are preliminary, investors were encouraged by the prospects of Novo Nordisk solidifying a best-in-class obesity designation, a desirable status given rising competition. In our view, Novo Nordisk has the best obesity/Type 2 diabetes pipeline in the industry, which should help protect this franchise from competition over the next 10 years.”
Overall, NVO ranks 6th 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 NVO 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.
