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 Organon & Co. (NYSE:OGN) 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 pharmacist wearing a white lab coat and a face mask dispenses biosimilars at a pharmacy.
Organon & Co. (NYSE:OGN)
Number of Hedge Fund Holders: 32
Organon & Co. (NYSE:OGN) is a global healthcare company focused on women’s health, biosimilars, and established brands. Its product portfolio includes prescription medicines for reproductive health, contraception, menopause management, fertility treatments, and therapies for osteoporosis and endometriosis. The company also develops biosimilars and maintains a range of established pharmaceutical brands. OGN ranks eighth on our list of the best oversold stocks from the healthcare sector.
Organon & Co. (NYSE:OGN) delivered strong results in the third quarter of 2024, with revenue reaching $1.582 billion, marking a 4% increase as reported and 5% at constant currency compared to the previous year. This growth was fueled by a 5% rise in Women’s Health revenue (6% excluding foreign exchange effects), a 16% increase in Biosimilars revenue (17% at constant currency), and a 2% rise in Established Brands revenue (3% at constant currency). Notably, the company’s flagship product, Nexplanon, is on track to achieve $1 billion in revenue next year, underscoring its robust market demand and growth potential.
Organon & Co. (NYSE:OGN)’s profitability showed mixed results in Q3 2024. While gross margins declined slightly to 58.3% as reported (61.7% non-GAAP adjusted), net income surged to $359 million ($1.38 per diluted share), up from $58 million ($0.23 per share) in Q3 2023. Adjusted EBITDA margin dipped slightly to 29.0% from 29.4%, impacted by $51 million in IPR&D expenses.
As of Q3 2024, 32 hedge funds in Insider Monkey’s database held shares in the company. The largest stakeholder was Citadel Investment Group with shares worth over $55 million. Eight Wall Street analysts set a 12-month average price target of $21.17 for Organon, with a high of $27.00 and a low of $16.00. This represents a 20.01% increase from the current price of $17.64.
Overall OGN ranks 8th on our list of the oversold healthcare stocks to invest in. While we acknowledge the potential of OGN 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 OGN 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.