River Road Asset Management, an investment management company released its “River Road Mid Cap Value Fund” Q4 2024 investor letter. A copy of the letter can be downloaded here. In the fourth quarter, AMG River Road Small Cap Value Fund (Class N) returned 2.97% compared to -1.75% returns for the Russell MidCap Value Index. For the year 2024, the fund returned 13.56%, compared to Index return of 13.07%. Stocks rallied in November after a Republican victory but declined sharply following hawkish Fed comments. Shorter duration stocks, including small caps and value, lost most of their post-election gains by the end of December. For more information on the fund’s best picks in 2024, please check its top five holdings.
In its fourth quarter 2024 investor letter, River Road Mid Cap Value Fund emphasized stocks such as Centene Corporation (NYSE:CNC). Centene Corporation (NYSE:CNC) is a healthcare enterprise that offers services to under-insured and uninsured families, and commercial organizations. The one-month return of Centene Corporation (NYSE:CNC) was 2.46%, and its shares lost 17.24% of their value over the last 52 weeks. On April 1, 2025, Centene Corporation (NYSE:CNC) stock closed at $60.45 per share with a market capitalization of $29.987 billion.
River Road Mid Cap Value Fund stated the following regarding Centene Corporation (NYSE:CNC) in its Q4 2024 investor letter:
“The holding with the lowest contribution to active return wasCentene Corporation (NYSE:CNC) , a managed care organization (MCO) specializing in government-sponsored plans. Historically, health insurance has been a steady business that generates consistent free cash flow (CNC has produced positive FCF since 1998), and we believe CNC stands out as the prime MCO beneficiary of any future economic weakness. The company is the leading provider of Medicaid managed care plans with 17% market share, and it also owns the leading individual exchange franchise. When the economy stumbles, CNC’s revenues should increase as more individuals qualify for CNC’s plans. We are particularly encouraged by the new management’s focus on shareholder value–since the founder stepped down in Q4 2021, the company has divested seven businesses for more than $3.5B and deployed the proceeds into share repurchases.
Despite these strong long-term fundamentals, Centene’s stock declined. This was primarily due to ongoing challenges in its Medicaid business, where the medical loss ratio continued to deteriorate due to a mismatch between reimbursement rates and patient acuity following redeterminations, with Medicaid membership declining -14% even as exchange enrollment grew 22%. While management remains confident this pressure is temporary and all states have acknowledged the need to adjust rates to match patient acuity, investors remained concerned about the timing of this recovery. The stock was further pressured by broader health care sector headwinds, including potential policy risks from a Republican sweep and changes to Medicare Part D prescription drug plans. Even though the company maintained its fiscal year (FY) 2024 adjusted earnings per share (EPS) guidance of over $6.80 and executed significant share repurchases of $1.6B in Q3 and October (~4.7% of shares outstanding), the stock traded at just 9.4x forward earnings, well below its five-year average of 12x, reflecting near-term investor skepticism. We maintained the position.”
A doctor holding a clipboard in a hospital ward, discussing patient treatment plan with the nurses.
Centene Corporation (NYSE:CNC) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 72 hedge fund portfolios held Centene Corporation (NYSE:CNC) at the end of the fourth quarter compared to 51 in the third quarter. While we acknowledge the potential of Centene Corporation (NYSE: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 as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
We covered Centene Corporation (NYSE:CNC) in another article, where we shared the list of best health insurance stocks to buy. In addition, please check out our hedge fund investor letters Q4 2024 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.