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 CVS Health Corporation (NYSE:CVS) 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 row of shelves in a retail pharmacy, demonstrating the variety of drugs and over-the-counter products.
CVS Health Corporation (NYSE:CVS)
Number of Hedge Fund Holders: 60
CVS Health Corporation (NYSE:CVS) is a U.S.-based healthcare company that operates a wide network of retail pharmacies and clinics across the country. Its key brands include CVS Pharmacy, a retail pharmacy chain; CVS Caremark, a pharmacy benefits manager; and Aetna, a health insurance provider.
Earlier this August, TD Cowen maintained a Hold rating on CVS Health Corporation (NYSE:CVS) following the company’s second-quarter 2024 performance, keeping a price target of $59.00. After CVS revised its yearly outlook, TD Cowen adjusted its 2024 earnings per share estimate to $6.53, aligning with the management’s updated guidance of $6.40 to $6.65. For 2025, the firm projects an 18% year-over-year increase, with EPS rising to $7.62. The 2025 projection factors in a roughly 110-basis-point margin improvement in the Medicare Advantage segment, within the company’s targeted range of 100 to 200 basis points. It also accounts for a 5% decline in Medicare Advantage membership and $500 million in anticipated cost savings.
The company has expanded its Aetna medical membership through CVS pharmacies to 9 million, reflecting an 8% increase. Additionally, Caremark now covers 13.8 million Aetna members, marking a 13% growth.
As of the end of the second quarter in 2024, 60 hedge funds tracked by Insider Monkey, out of a database of 912, held positions in CVS Health Corporation (NYSE:CVS).
Ariel Global Fund stated the following regarding CVS Health Corporation (NYSE:CVS) in its Q2 2024 investor letter:
“American healthcare company, CVS Health Corporation (NYSE:CVS), also declined following disappointing earnings results and a subsequent reduction in full year guidance. The miss was primarily due to increased utilization of Medicare Advantage plans and weakness in the health services segment driven by the loss of a large client and continued pharmacy client price improvements. In response, management reiterated its focus on improving margins and enhancing its positioning in Medicare Advantage. CVS believes the program can remain an attractive business for Aetna and CVS Health over time and will construct its bid for 2025 as a multi-year repricing opportunity across plan level benefits. Meanwhile, CVS continues to return capital to shareholders through dividends and a recent accelerated share repurchase transaction.”
Overall CVS ranks 6th on our list of the best health insurance stocks to buy. While we recognize the potential of CVS 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 CVS 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.
