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 Tenet Healthcare Corporation (NYSE:THC) 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).
A room full of medical personnel collaborating on a treatment plan for a patient.
Tenet Healthcare Corporation (NYSE:THC)
Number of Hedge Fund Holders: 65
Tenet Healthcare Corporation (NYSE:THC) is a leading U.S. healthcare provider, operating hospitals, outpatient centers, and specialty care facilities. It generates revenue through patient services, insurance reimbursements, physician services, outpatient care, and ancillary services like pharmacy operations and medical equipment rentals.
Tenet Healthcare Corporation (NYSE:THC) delivered strong financial results for Q4 and the full year 2024, highlighting its operational efficiency and strategic growth. Net operating revenue reached $20.7 billion, supported by same-facility revenue growth despite hospital divestitures. Net income surged to $3.2 billion, significantly up from $611 million in 2023, driven by a $2.916 billion pre-tax gain from hospital sales. Adjusted EBITDA grew 13% year-over-year to $4 billion, with a margin improvement of over 200 basis points to 19.3%.
In its key segments, USPI (Ambulatory Care) saw a 17% rise in adjusted EBITDA to $1.81 billion, with a Q4 margin of 42.1% and strong growth in high-acuity cases. The hospital segment’s adjusted EBITDA increased by 9% to $2.185 billion, supported by a 4.7% rise in same-store admissions. Free cash flow for the year was $1.1 billion, excluding divestiture-related taxes. Additionally, the corporation repurchased 5.6 million shares worth $672 million, signaling confidence in its valuation.
Strategically, Tenet Healthcare Corporation (NYSE:THC) has reshaped its portfolio by selling 14 hospitals, generating $5 billion in proceeds to strengthen its balance sheet. As one of the best healthcare stocks, it expanded its Ambulatory Surgery Center (ASC) network by adding over 70 new centers, capitalizing on the industry’s shift toward outpatient care. Investments in AI-driven technologies further enhance clinical efficiency and patient experiences. With a strong payer mix and pricing power, the business is well-positioned for continued growth.
Overall, THC ranks 3rd 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 THC 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.
