We recently compiled a list of the 10 Oversold Healthcare Stocks To Invest In. In this article, we are going to take a look at where Elanco Animal Health Incorporated (NYSE:ELAN) stands against the other oversold healthcare stocks.
The Promising Outlook for Healthcare Investments in 2024
Investing in healthcare stocks during lean economic times is generally regarded as defensive. This is because people typically do not cut back on their use of prescription medications or other essential healthcare services, even during difficult financial times. According to the Centers for Medicare and Medicaid Services (CMS), national healthcare spending is projected to reach an estimated $4.8 trillion in 2023 and grow at an annual rate of 5.6% between 2027 and 2032.
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 United States’ 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 put pressure on 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.
Investments in AI within the healthcare sector have grown rapidly, outpacing the tech industry, with $2.8 billion invested in AI healthcare corporations in 2024, and over $11 billion expected by the end of the year. According to a Silicon Valley Bank report, one-quarter of healthcare spending now goes to AI-driven companies. Deloitte’s 2024 Global Health Care Sector Outlook highlights high investor confidence, with $31.5 billion in private equity funding between 2019 and 2022. AI is expected to save $360 billion in U.S. healthcare over the next five years by improving patient care, diagnosis, treatment, and medical administration.
Optimism in the healthcare industry is growing as 2024 goes on. Financial experts anticipate better earnings this year despite 2023’s poor performance. The healthcare industry has a “favorable risk-reward environment,” according to BlackRock’s 2024 prediction, which also notes that investors now have an appealing starting point because of last year’s poor performance. In view of this, we will take a look at oversold stocks from the healthcare sector.
Our Methodology
For our methodology, we used a stock screener and selected healthcare stocks that had an RSI below 30, mid-market cap, and high institutional ownership. Then we ranked the stocks based on their total number of hedge fund holders as of Insider Monkey’s database of Q3 2024.
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).
A farmer tending to a herd of cattle with Innovative Parasiticide and Vaccine Products.
Elanco Animal Health Incorporated (NYSE:ELAN)
Number of Hedge Fund Holders: 42
Elanco Animal Health Incorporated (NYSE:ELAN) is a global leader in animal health solutions, developing products and services to prevent and treat diseases in farm animals and pets. Operating in over 90 countries, the company offers a wide range of products, including parasiticides, vaccines, and therapeutics for companion animals and livestock.
Elanco Animal Health Incorporated (NYSE:ELAN) reported Q3 2024 revenue of $1.03 billion, reflecting a 4% decline from the previous year. However, excluding the divestiture of their Aqua business and foreign exchange impacts, organic constant currency revenue grew by 1%. The company exceeded earnings expectations with an EPS of $0.13, surpassing the forecast of $0.12. Elanco also made significant progress in debt management, paying down $1.3 billion in debt and reducing its net leverage from mid-five times to mid-four times. Elanco Animal Health Incorporated (NYSE:ELAN)’s growth was driven by new products like Zenrelia and Credelio Quattro, particularly in the pet health sector, while the U.S. farm animal business saw an 11% revenue increase, primarily driven by cattle products such as Experior.
As of Q3 2024, 42 hedge funds in the Insider Monkey database held shares in Elanco Animal Health Incorporated (NYSE:ELAN). The largest stakeholder in the company was Magnetar Capital with over 10.5 million shares worth $155.4 million. The stock holds a Moderate Buy rating. Seven Wall Street analysts have set a 12-month price target for Elanco Animal Health, with an average target of $18.67, reflecting a potential 45.52% increase from its current price of $12.83. The forecasts range from a low of $15.00 to a high of $22.00.
Overall ELAN ranks 4th on our list of the oversold healthcare stocks to invest in. While we acknowledge the potential of ELAN 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 ELAN 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.
