We recently compiled a list of the 10 Best Health Insurance Stocks to Buy. In this article, we are going to take a look at where Centene Corporation (NYSE:CNC) stands against the other health insurance stocks.
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).
A doctor holding a clipboard in a hospital ward, discussing patient treatment plan with the nurses.
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.”
Overall CNC ranks 7th on our list of the best health insurance stocks to buy. You can visit 10 Best Health Insurance Stocks to Buy to see the other health insurance stocks that are on hedge funds’ radar. While we acknowledge the potential of CNC as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CNC 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.