We recently compiled a list of the 10 Oversold Healthcare Stocks To Invest In. In this article, we are going to take a look at where Molina Healthcare, Inc. (NYSE:MOH) stands against the other oversold healthcare stocks.
The Promising Outlook for Healthcare Investments in 2024
Investing in healthcare stocks during lean economic times is generally regarded as defensive. This is because people typically do not cut back on their use of prescription medications or other essential healthcare services, even during difficult financial times. According to the Centers for Medicare and Medicaid Services (CMS), national healthcare spending is projected to reach an estimated $4.8 trillion in 2023 and grow at an annual rate of 5.6% between 2027 and 2032.
In the US, the healthcare sector is flourishing. According to a recent estimate, the country’s healthcare spending increased by 7.5% in 2023, above the nominal GDP growth rate for the same year. A record 93.1% of Americans now have health insurance, which helped fuel last year’s sharp increase in healthcare spending. The United States’ national healthcare spending is expected to increase at an average rate of 5.6% between 2023 and 2032, above the 4.3% growth predicted for GDP.
Additionally, the industry is growing quickly on a global scale. According to recent McKinsey projections, healthcare profits would increase at a compound annual growth rate (CAGR) of 7% from $583 billion in 2022 to over $800 billion by 2027. Although labor shortages and rising inflation rates continued to put pressure on the business in 2023, a good risk-reward climate in the sector is expected to make 2024 a year of recovery. According to the American investment firm, the events of 2023 have produced an alluring opportunity for investors to engage in the healthcare industry.
Investments in AI within the healthcare sector have grown rapidly, outpacing the tech industry, with $2.8 billion invested in AI healthcare corporations in 2024, and over $11 billion expected by the end of the year. According to a Silicon Valley Bank report, one-quarter of healthcare spending now goes to AI-driven companies. Deloitte’s 2024 Global Health Care Sector Outlook highlights high investor confidence, with $31.5 billion in private equity funding between 2019 and 2022. AI is expected to save $360 billion in U.S. healthcare over the next five years by improving patient care, diagnosis, treatment, and medical administration.
Optimism in the healthcare industry is growing as 2024 goes on. Financial experts anticipate better earnings this year despite 2023’s poor performance. The healthcare industry has a “favorable risk-reward environment,” according to BlackRock’s 2024 prediction, which also notes that investors now have an appealing starting point because of last year’s poor performance. In view of this, we will take a look at oversold stocks from the healthcare sector.
Our Methodology
For our methodology, we used a stock screener and selected healthcare stocks that had an RSI below 30, mid-market cap, and high institutional ownership. Then we ranked the stocks based on their total number of hedge fund holders as of Insider Monkey’s database of Q3 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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A doctor in scrubs shaking hands with a patient, representing the healthcare services provided to individuals and families.
Molina Healthcare, Inc. (NYSE:MOH)
Number of Hedge Fund Holders: 37
Molina Healthcare, Inc. (NYSE:MOH), founded in 1980 by Dr. C. David Molina, is a managed care company that provides health insurance primarily through government programs like Medicaid and Medicare. Originally a single clinic in Long Beach, California, aimed at serving low-income patients, Molina now operates in 19 states and serves over 5.1 million members.
Molina Healthcare (NYSE: MOH) emerges as one of the best oversold stocks with substantial growth potential. In Q3 2024, the company reported strong financial performance, with adjusted EPS of $6.01 and premium revenue of $9.7 billion, reaffirming its 2024 guidance of approximately $38 billion in premium revenue and at least $23.50 in EPS, representing 17% and 13% year-over-year growth, respectively. Key metrics included a Q3 adjusted pre-tax margin of 4.5%, a year-to-date consolidated MCR of 88.8%, and an adjusted G&A ratio of 6.4%.
Supported by a solid balance sheet with a 35% debt-to-capital ratio and debt at 1.4 times trailing 12-month EBITDA, Molina Healthcare, Inc. (NYSE:MOH) is well-positioned for long-term growth across Medicaid, Medicare, and Marketplace segments. Strategic initiatives, including retaining the Florida contract, potential expansion in Georgia, and competitive rate filings for 2025, further bolster the company’s growth outlook. The company anticipates $1 billion in incremental premium revenue by 2027 from its Michigan contract and $400 million within three years from its Massachusetts contract.
Additionally, back in June, Molina Healthcare Inc. (NYSE:MOH) acquired ConnectiCare, a top Connecticut health plan, as part of its strategic growth objectives. With the addition of a well-known brand and a statewide provider network, this acquisition, which covers 140,000 members across Marketplace, Medicare, and certain commercial programs, improves Molina’s standing.
As of Q3 2024, 37 hedge funds in the Insider Monkey database held shares in the company. The largest stakeholder in the company was Durable Capital Partners with shares worth $361.4 million.
Overall MOH ranks 5th on our list of the oversold healthcare stocks to invest in. While we acknowledge the potential of MOH 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 MOH 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.