We recently compiled a list of the 7 Best Mid-Cap Healthcare Stocks To Buy Now and in this article we discuss why hedge funds have sizable positions in Exact Sciences Corporation (NASDAQ:EXAS).
Challenges in the Health Sector
The healthcare industry is considered to be a fairly defensive sector due to its need. According to a World Health Organization report from December 2023, global health spending reached a new high in 2021 at $9.8 trillion or 10.3% of global gross domestic product (GDP). However, spending distribution remained highly unequal, with public health spending increasing worldwide, except in low-income countries where government health spending declined as it relied heavily on external health aid. In 2021, 11% of the global population lived in countries spending less than $50 per person annually on health, while high-income countries spent around $4,000 per capita. Additionally, low-income countries, despite having 8% of the global population, accounted for only 0.24% of global health expenditure. The report states that while there was a significant increase in public spending on health during the peak of the COVID-19 pandemic, this growth is unlikely to be sustained over the long term as countries now focus on economic challenges like slowing growth, high inflation, and increased debt servicing. Dr Bruce Aylward, WHO Assistant Director-General, Universal Health Coverage, Life Course said:
“Sustained public financing on health is urgently needed to progress towards universal health coverage. It is especially critical at this time when the world is confronted by the climate crisis, conflicts and other complex emergencies. People’s health and well-being need to be protected by resilient health systems that can also withstand these shocks.”
Apart from that, due to the residual effects of the COVID-19 pandemic, the healthcare industry has also been facing challenges such as labor shortages and high costs. Our article about the best healthcare ETFs covers this extensively.
Adversity Drives Innovation
While the broader market has outperformed the healthcare sector by a huge margin over the last year, healthcare companies have been putting in their work to drive innovation in the industry. AI and other technologies are the driving forces for these companies. However, some of the companies have been using these technologies for longer. For example, Pfizer has been using AI in pharmacovigilance since 2014. The company also uses AI to analyze vast datasets, predict treatment outcomes, and streamline clinical development processes. The company made the following comments in one of its reports:
“If the ultimate goal of a self-driving car is to navigate a busy city street, in pharmaceutical research, the goal is to navigate the connections between a potential treatment and its effectiveness in treating a disease.”
On May 21, AstraZeneca’s CFO Aradhana Sarin told CNBC that the healthcare company is in a “new era of growth.” The company is expected to generate a revenue of $80 billion by 2030. Sarin said in the interview that the company is expecting to launch 20 potential new drugs by that time, and a number of them could potentially be $5 billion drugs. The CFO mentioned several upcoming innovations for the company, such as replacing chemotherapy with antibody-drug-conjugates (ADCs) and radiation therapies with radiopharmaceuticals. At its Q1 2024 earnings call, the biopharmaceutical giant’s CEO, Pascal Soriot said:
“Today is what do we intend to deliver in terms of our financial progression in ’24, ’25, ’26. Tomorrow is what are the products we are going to launch that will drive our growth between 2025 and 2030, and what is our strategy there, what do we intend to do with our pipeline, and what other products we believe are growth drivers to 2030. And the day after tomorrow is really the sort of post-2030 period. And what are — what do we believe are the technologies that will shape the future of medicine in oncology and beyond, and how are we building some of those platforms that will help us shape — participate in shaping the future of medicine in the therapy areas where we are.”
Elena Pavlovich/Shutterstock.com
Our Methodology
For this article, we used the Finviz stock screener to identify nearly 140 healthcare companies with market capitalizations between $2 billion and $10 billion. We narrowed down our list to 7 stocks that were most widely held by institutional investors. The best mid-cap healthcare stocks are listed in ascending order of their hedge fund sentiment.
The hedge fund data was taken from Insider Monkey’s database of 919 elite hedge funds as of the first quarter of 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 best hedge funds. Our quarterly newsletter’s strategy picks 14 small and large-caps every quarter and it has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Do Hedge Funds Like Exact Sciences Corporation (NASDAQ:EXAS)?
Exact Sciences Corporation (NASDAQ:EXAS)
Number of Hedge Fund Holders: 48
Exact Sciences Corporation (NASDAQ:EXAS) is a Wisconsin-based company that offers cancer screening and diagnostic test products. In the first quarter, 48 hedge funds held stakes in Exact Sciences Corporation (NASDAQ:EXAS), with stake value totaling $1.54 billion. As of the first quarter, Catherine D. Wood’s ARK Investment Management is the top shareholder in the company and has a position worth $225.66 million.
On May 8, Exact Sciences Corporation (NASDAQ:EXAS) reported Q1 earnings with a GAAP EPS of -$0.60. The revenue of $637.52 million jumped 5.8% year-over-year, which beat the estimates by $10.71 million. The company reiterated its revenue guidance for 2024 at $2.810-$2.850 billion with the assumption that the screening revenue will be between $2.155-$2.175 billion and precision oncology revenue will fall between $655 million and $675 million.
Artisan Partners stated the following regarding Exact Sciences Corporation (NASDAQ:EXAS) in its first quarter 2024 investor letter:
“Among our top detractors were Atlassian, ON Semiconductor and Exact Sciences Corporation (NASDAQ:EXAS). Exact Sciences is a leading provider of diagnostic testing and a maker of the noninvasive colorectal cancer screening test Cologuard. The company reported another solid quarter with revenues growing 18% and, importantly, screening (Cologuard) revenues growing 21%. However, growing optimism around a competing blood-based test has led to competitive fears among investors and corresponding performance weakness. Our view has been that blood tests, while potentially more convenient, have historically been unable to match the accuracy of stool testing (especially when it comes to detecting early cancers). Shortly after the quarter entered, new blood test data from a private competitor (Freenome) supported our views. Its test demonstrated 79% sensitivity for detecting colorectal cancer versus Cologuard 2.0’s 94% sensitivity.”
Exact Sciences Corporation (NASDAQ:EXAS) ranks 5th on our list of best mid-cap healthcare stocks to buy. To learn about hedge fund’s top mid-cap healthcare picks, check out our free report on the 7 Best Mid-cap Healthcare Stocks To Buy Now.
If you are looking for an AI stock that is as promising as Microsoft 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 on Insider Monkey.
