We recently compiled a list of the Top 10 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.
The health insurance industry is constantly changing, driven by a movement towards consumer-driven healthcare, in which people actively control their own health and healthcare costs. In that sense, Fortune Business Insights projects that the global healthcare insurance market is estimated to be worth $2.14 trillion in 2024 and will grow from $2.32 trillion in 2025 to roughly $4.45 trillion by 2032, reflecting a 9.7% CAGR over the forecast period.
AI in Health Insurance
According to McKinsey, health insurers might benefit significantly from completely incorporating AI and automation into their business operations. The firm believes 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. In addition, these technologies may create an additional $260 million to $1.24 billion in income.
That said, concerns regarding AI’s expanding role in health insurance, particularly around claim denials, have escalated in recent months, especially in light of the death of UnitedHealthcare CEO Brian Thompson. These concerns had previously pushed the Biden administration to establish optional operational agreements with insurers, payers, and providers in 2023. In 2024, an executive order was issued to create criteria and safeguards for AI implementation. However, in January of this year, the Trump administration revoked Biden’s AI mandate, proposing that a new action plan be developed by the middle of the year.
Commenting on the rising implementation of AI in health insurance, law firm Maynard Nexsen stated:
“The AI landscape continues to develop, and the regulations appear to be loosening — at least at the federal level. These changes have led to uncertainty among organizations using AI technology.”
Medicaid Concerns
Medicaid, the nation’s largest health insurance program, which covers more than 70 million people, could be slashed under House Republican proposals. Lawmakers are proposing cutbacks of up to $2.3 trillion over the next decade to help fund border security and extend President Trump’s 2017 tax cuts. As the government works to decrease federal debt while maintaining expenditure commitments, Medicaid remains a key priority. To further expand on the implications of such a move, it should be noted that the Affordable Care Act (ACA) has considerably expanded the program’s scope and expense, making it the principal provider of comprehensive health and long-term care for one in every five Americans and accounting for approximately $1 out of every $5 spent on healthcare.
Furthermore, House Republicans just passed a budget by a slim margin, requiring the Energy and Commerce Committee, in charge of federal healthcare, to reduce $880 billion in expenditures. The reductions are designed to help support Trump’s tax cuts, mass deportations, and defense spending.
Our Methodology
For our list of the best health insurance stocks to buy, we started with a list of stocks pulled from ETFs, stock screeners, and web rankings. We then utilized Insider Monkey’s Q4 2024 database to discover the top ten stocks held by hedge funds. The list is organized in ascending order of hedge fund sentiment around each stock.
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 373.4% since May 2014, beating its benchmark by 218 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: 72
Centene Corporation (NYSE:CNC), based in St. Louis, Missouri, is a managed care company that acts as a middleman for government-sponsored and privately insured healthcare programs, primarily in the Medicaid market.
Cantor Fitzgerald reiterated its Overweight rating and $90 price target on Centene Corporation (NYSE:CNC) shares. Sarah James, the firm’s analyst, presented insights into Centene’s earnings per share and revenue risk from Medicaid expansion and states with trigger legislation. Centene reported an EPS of $0.13 on revenue of $17.8 billion, with high exposure to states that have implemented trigger legislation. The company’s total revenue in the past year were $147.29 billion, with a 14.65% gross profit margin.
Looking ahead, Centene Corporation (NYSE:CNC) has provided forecasts for 2025, with an estimated premium and service revenue between $158 billion and $160 billion, alongside an adjusted diluted EPS of more than $7.25.
Greenlight Capital stated the following regarding Centene Corporation (NYSE:CNC) in its Q4 2024 investor letter:
“We established a new medium-sized position in CNH Industrial (CNH) and a small position in Centene Corporation (NYSE:CNC). CNC is the largest Managed Medicaid company. Shares are trading at a historically low valuation despite the company currently significantly underearning in its Medicaid book. This valuation disconnect is driven by concerns about the impact of a likely non-extension of enhanced ACA exchange subsidies beyond 2025 on CNC’s exchange business, as well as potential attempts by the incoming Trump administration to make adverse changes to the Medicaid program. We think a repricing in the core Medicaid business over the next two years could more than offset some of these potential headwinds, which are not guaranteed to materialize. We acquired our shares at an average price of $60.54, or about 9x current earnings. Management and the board are taking advantage of the situation by sharply ramping up share repurchases, as well as making large personal stock purchases. CNC ended the year at $60.58.”
Overall CNC ranks 6th on our list of the top health insurance stocks to buy. While we acknowledge the potential of CNC as an investment, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CNC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
Disclosure: None. This article is originally published at Insider Monkey.
