We recently published a list of 10 Best Healthcare Stocks For Long-Term Investment. In this article, we are going to take a look at where DaVita Inc. (NYSE:DVA) stands against other best healthcare stocks for long-term investment.
Rising Healthcare Costs and the Impact of Tariffs on the US Industry
In the US, healthcare expenditures and costs have been increasing. According to the Centers for Medicare & Medicaid Services, US healthcare spending increased 7.5% from 2022 to $4.9 trillion in 2023. In 2023, the healthcare industry made up around 17.6% of the US economy, up 17.4% from 2022. The expansion of Medicare and commercial health insurance are the two main forces behind this growth.
The impact of tariffs on this continuing trend has become a major topic of contention in the healthcare sector, as more and more US corporations are turning to China for deals on the next promising molecule, whether in the obesity or cancer arena. Versant Ventures managing director Carlo Rizzuto spoke on the effects of tariffs on healthcare on CNBC’s “Fast Money” on February 7. Tariffs might affect the sector in two ways, according to Rizzuto. Products developed in China and introduced to the US or other markets would be the first. The sector would need to see how the tariffs are set up in the market to comprehend how they would impact such trade operations.
Second, and more concretely, the US healthcare industry uses China as a huge hub for contract production and research. As a result, anything that raises that expense is probably going to make the market more difficult. An increase in costs will not improve the running of the healthcare sector, which is already facing pressure from investors.
China’s Role in U.S. Healthcare and Long-Term Investment Opportunities
Speaking about China’s enormous influence in the pharmaceutical and healthcare industries, Rizzuto stated that the vast majority of healthcare organizations use a Chinese CRO or manufacturing partner in some capacity during the research and development phase. As a result, it plays a crucial role in the way biotech and pharmaceutical companies function in the nation. From the tiniest businesses to the biggest, this pattern is very common.
Simply said, the United States lacks the infrastructure to handle the transfer, thus healthcare corporations cannot reshore all of their externalized R&D and production to the country. Therefore, it is quite hard to understand how such a large-scale reshoring might occur. With the quantity of tariffs applied, the costs to accomplish this achievement can be computed linearly.
According to McKinsey, healthcare EBITDA is projected to rise from a baseline of $676 billion in 2023 to $987 billion in 2028 at a 7% CAGR. Recovery from post-pandemic lows is anticipated to support the improvement in several segments, while growth is anticipated to be faster in other areas (such as specialist pharmacy and HST). Software platforms are essential to the healthcare ecosystem because they make it possible for payers and providers to operate more effectively in a complicated setting.
By automating processes, fostering data connectivity, and producing actionable insights, technological innovation (such as generative AI and machine learning) keeps opening doors for stakeholders across all segments. McKinsey went on to say that increased utilization and pipeline expansion (as in cancer) are projected to drive substantial growth in specialty pharmacy revenue. Specialty pharmacy profit pools are still growing as a result of the rise in the use of specialty medications.
Our Methodology
For our methodology, we used a Finviz screener and picked stocks with a market cap of over 2 billion, a 5-year annual return of over 10%, and a low PE ratio under 20. We then ranked these stocks based on their total number of hedge fund holders as of Q4 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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Clinical laboratory technicians running tests in the comprehensive kidney care services.
DaVita Inc. (NYSE:DVA)
Number of Hedge Fund Holders: 46
DaVita Inc. (NYSE:DVA) is a leading kidney care provider specializing in dialysis treatments for chronic kidney disease and end-stage renal disease and stands fifth on our list of the best healthcare stocks for long-term investment. The company provides both in-center and at-home dialysis alternatives through its extensive network of dialysis facilities in the United States and abroad. The corporation offers ancillary services like laboratory tests, pharmaceutical solutions, and illness management programs in addition to billing insurance companies like Medicare, Medicaid, and private insurers.
DaVita Inc. (NYSE:DVA) ended 2024 on a strong note, showing resilience and growth. The company reported Q4 adjusted operating income of $491 million, bringing the full-year total to $1.98 billion. Adjusted EPS for Q4 was $2.24, contributing to a full-year EPS of $9.68. Free cash flow reached $281 million for the quarter and $1.16 billion for the year. U.S. treatment volume grew slightly, while revenue per treatment increased by $1 sequentially.
For 2025, DaVita Inc. (NYSE:DVA) expects adjusted operating income between $2.01 billion and $2.16 billion, reflecting a 5.2% growth at the midpoint. Treatment volume is projected to remain steady, while revenue per treatment is expected to grow by 4.5% to 5.5%. Adjusted EPS is forecasted between $10.20 and $11.30 which represents 11% growth at the midpoint.
Key developments include the transition of oral medications to the dialysis bundle starting in 2025, which is expected to benefit patients. The business also continues its share repurchase program, reinforcing its commitment to shareholder value. Additionally, the company expanded internationally, closing three out of four planned Latin American acquisitions in 2024.
As of Q4 2024, 46 hedge funds held stakes in the stock, as tracked by the Insider Monkey database. The largest stakeholder was Berkshire Hathaway with stakes worth $5.3 billion.
Overall, DVA ranks 5th on our list of best healthcare stocks for long-term investment. While we acknowledge the potential of healthcare companies, our conviction lies in the belief that 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 DVA 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.
