We recently published a list of 15 Best Stocks to Buy According to Hosking Partners. In this article, we are going to take a look at where Elevance Health, Inc.’s (NYSE:ELV) stands against the other best stocks to buy according to Hosking Partners.
Hosking Partners was established in 2013 by Jeremy Hosking as an independent partnership that offers a single global equity strategy. The firm appeals to investors seeking long-term returns and innovative thinking employing a capital cycle approach to investing. It has a diverse set of stocks in its portfolio that belong to a variety of industries consisting of AI, shipping, and financial services, among others. Jeremy Hosking earned an MA from the University of Cambridge, after which he served Marathon Asset Management 26 years as a founding partner and lead portfolio manager. There he contributed to developing the capital cycle approach to investment.
In its recent blog about shipping, Hosking Partners believes that understanding the cycles in different classes of shipping and global trends is essential for successful investment in the industry. Currently, Shipping (covering the container, dry bulk, product tanker and LNG sub-sectors) represents 1.25% of the portfolio. Global trade has declined as a percentage of GDP since 2010 caused by deglobalization, accelerated by the COVID-19 pandemic and geopolitical instability from the Russia-Ukraine war. This trend, coupled with the energy transition, is expected to constrain future supply and increase commodity price volatility, benefiting shipping by enabling cross-border trade.
Furthermore, shipping is a significant emitter of CO2, accounting for about 3% of global emissions. Environmental regulations aim to reduce emissions, but uncertainty over future fuel technology deters investment in new ships, leading to a tighter supply. The industry’s efficiency, measured by emissions per tonne-km, remains high compared to other transport modes. The shipping industry is at a pivotal juncture, with significant transformations driven by AI, the energy transition, and ESG considerations.
Another industry that Hosking Partners talks about is copper mining. Copper is often seen as a barometer for economic health and is crucial for the energy transition, including electric vehicles, power grids, and wind turbines. Wall Street banks are optimistic about copper prices, forecasting significant gains. Citi analysts suggest that prices could surge to over $15,000 per ton in the next 2-3 years if a strong economic recovery occurs, while their base case projects a rise to $12,000 per ton with modest demand growth through 2025 and 2026. Bank of America has also increased its 2024 copper price target to $9,321 from $8,625, citing tight mine supply and high demand driven by the energy transition as key factors.
However, some experts are cautious. Colin Hamilton of BMO Capital Markets argues that commodity markets tend to self-correct, and if supply issues persist, demand may adjust, potentially leading to lower prices. Hamilton suggests that while high price targets might be temporarily achievable, adjustments in demand could follow. The market may see a modest surplus due to increased mined supply, which is projected to grow by 4-4.5%. This is largely driven by new greenfield and brownfield projects. Despite the near-term surplus, long-term scarcity is anticipated as regulatory and political challenges in South America could impede the development of new mines.
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Elevance Health, Inc. (NYSE:ELV)
Hosking Partners’ Stake Value: $56,076,008
Percentage of Hosking Partners’ 13F Portfolio: 2.07%
Number of Hedge Fund Holders: 73
Elevance Health, Inc. (NYSE: ELV) operates as a health benefits company in the United States through its subsidiaries, managing Blue Cross and Blue Shield plans in 14 states and holding licenses to sell health insurance nationwide. The company offers various health plans, including employer-sponsored and individual plans, Medicare Advantage, Medicare supplements, and Medicaid. Recently, Elevance partnered with private equity firm Clayton, Dubilier & Rice (CD&R) to expand its primary care services.
Elevance Health, Inc. (NYSE:ELV) for the second quarter reported GAAP diluted earnings per share of $9.85 and adjusted diluted earnings per share of $10.12, which indicates a year-over-year growth of 12%. At the conclusion of the second quarter, the company had 45.8 million members, primarily due to a decline in Medicaid membership.
The commercial fee-based segment experienced an increase of 354,000 lives compared to the previous year, underscoring the significant value offered to self-insured employers and the robust reputation of the Blue Cross Blue Shield brand. Furthermore, the strategic positioning of Elevance Health, Inc.’s (NYSE:ELV) individual ACA products has effectively facilitated strong and profitable growth.
Baron Health Care Fund stated the following regarding Elevance Health, Inc. (NYSE:ELV) in its Q2 2024 investor letter:
“We added to the position in Elevance Health, Inc. (NYSE:ELV), a leading managed care company. We think Elevance Health is well positioned to grow earnings double digits driven in part by its growing health care services business. Managed health care stocks continued to be weighed down by Medicare Advantage utilization and reimbursement concerns. Lack of near-term visibility on utilization trends was exacerbated by the Change Healthcare cyberattack, which disrupted payors’ normal utilization review and claims adjudication processes while new CMS rules are restricting the number of lower cost hospital observation stays in favor of full inpatient admissions. We believe our managed care holdings are likely to perform better in the second half of the year as investors look to 2025.
Elevance Health, Inc., with its more balanced member mix, has its own unique and unappreciated growth drivers which include the ongoing scaling of its PBM and Specialty Pharmacy and the continued growth of its Carelon Services. We note a Republican win in the upcoming election could result in a more favorable environment for Medicare Advantage companies after two years of adverse Medicare Advantage rate updates under the Biden administration.”
Overall ELV ranks 12th on our list of the best stocks to buy according to Hosking Partners. While we acknowledge the potential of ELV 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 ELV 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.