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.
Health insurance remains a contentious issue in the United States, where many people struggle to afford basic medical care. Although widely seen as essential, it remains inaccessible to many Americans. Despite the availability of public and private health insurance options, individuals often find themselves between qualifying for federal assistance and affording private insurance, leaving many without coverage. On that front, the Kaiser Family Foundation reports that 64.2% of uninsured non-elderly adults (ages 18 to 64) cite high costs as the primary reason for not having health insurance.
Conversely, private insurance, primarily provided through employers, remains the most common form of coverage in the U.S., with around 60% of Americans insured this way—roughly three times the number covered by Medicaid. The number of Americans with private health insurance began gradually increasing in 2013 after a sharp decline in the late 1990s and early 2000s, with coverage averaging around 61% of the population from 2016 to 2023. This rise has boosted revenues for private insurers in recent years.
As of 2023, the U.S. health insurance exchanges, established under the Affordable Care Act (ACA) in 2014, are marking their tenth year in operation. Over the past decade, the individual market has seen notable fluctuations in insurer participation, pricing, and plan options. With a recent surge in exchange enrollment, commercial insurers that previously avoided these marketplaces may need to reassess, as exchanges have become a vital part of health coverage. That said, this unprecedented growth may be temporary. The return of the subsidy cliff—if enhanced subsidies are not renewed in 2025—could reverse some of the progress. The 2024 election results may also influence the future of ACA coverage and subsidies, bringing potential changes under scrutiny.
Global consulting firm McKinsey reports that health insurers could gain significant advantages by fully integrating AI and automation across their business processes. The firm estimates that for every $10 billion in revenue, insurers could save $150 million to $300 million in administrative costs and $380 million to $970 million in medical expenses. Additionally, these technologies could generate an extra $260 million to $1.24 billion in revenue.
The global health insurance industry is poised for significant growth, with projections from Straits Research forecasting a Compound Annual Growth Rate (CAGR) of 9.8% from 2024 to 2032. By 2032, the market is expected to reach a value of $176.04 billion.
Our Methodology
To create our list of top health insurance stocks to buy, we first compiled an initial list of 20 health insurance stocks by sifting through ETFs, stock screeners, and online rankings. We then used Insider Monkey’s Q2 2024 database to identify the 10 stocks most widely held by hedge funds. The list is sorted in ascending order of the hedge fund sentiment for each stock.
At Insider Monkey, we are obsessed with 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 clipboard in a hospital ward, discussing patient treatment plan with the nurses.
Centene Corporation (NYSE:CNC)
Number of Hedge Fund Holders: 48
Centene Corporation (NYSE:CNC), headquartered in St. Louis, Missouri, is a publicly traded managed care company that serves as an intermediary for both government-sponsored and privately insured healthcare programs, with a primary focus on the Medicaid market.
Wells Fargo recently updated its outlook on Centene Corporation (NYSE:CNC), raising the price target from $81 to $93 while maintaining its Overweight rating, signaling confidence in the stock’s investment potential. The revised price target is based on Wells Fargo’s analysis of two possible earnings scenarios for CNC. In the first scenario, assuming the continuation of enhanced exchange subsidies, the firm applied a 13x multiple to Centene’s projected 2026 earnings per share. In the second scenario, should the enhanced subsidies expire, Wells Fargo anticipates a $0.70 EPS headwind, which would be partially offset by $2.00 per share in statutory capital.
Centene Corporation (NYSE:CNC) posted strong results for the second quarter, reporting an adjusted diluted EPS of $2.42, a 15% year-over-year increase. This solid performance was primarily driven by effective marketplace execution, despite challenges in Medicaid due to redeterminations. Looking ahead, the health insurer has raised its full-year premium and service revenue expectations to a range of $141 billion to $143 billion. Additionally, the company is targeting 2025 revenue between $14 billion and $16 billion, focusing on opportunities in duals, Heidi, and Fidei programs.
As of Q2 2024, 48 hedge funds tracked by Insider Monkey held stakes in Centene Corporation (NYSE:CNC). Among the top investors, AQR Capital Management owned a stake valued at over $296.4 million.
Overall CNC ranks 7th on our list of the best health insurance stocks to buy. While we recognize the potential of CNC as an investment, we believe certain deeply undervalued AI stocks offer greater prospects for higher returns in a shorter period. If you’re seeking an AI stock with even more promise than CNC and trading 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.
