We recently compiled a list of the 10 Best Very Cheap Stocks To Buy Now According To Hedge Funds. In this article, we are going to take a look at where Tenet Healthcare Corporation (NYSE:THC) stands against the other very cheap stocks to buy according to hedge funds.
As we approach the third half of 2024, the market’s performance continues to draw in both investors and analysts alike. After rising by an average of 24% the year before, the 500 largest-cap US equities finished the second quarter of this year with an impressive gain of over 3%, on average. Overall, the unexpectedly resilient U.S. economy and the frenzied AI boom have propelled equities to unprecedented levels.
Even though the markets are currently worried about a slowdown, most recent economic indicators complement this market performance, demonstrating the US economy’s resilience. The Commerce Department revealed a 3.1% YoY gain in Q4,2023 for the economy, primarily due to solid consumer expenditure on dining out, healthcare, and automobiles. The world’s largest economy’s growth prediction was slightly revised by the IMF to 2.6% this year, pointing out the country’s robust and adaptable nature to changes in the global economy. According to Economic Intelligence’s consumer goods and retail outlook study for 2024, global retail sales are projected to rise by 6.7% in 2024, bolstered by a 2% increase in volume, regardless of a dip in inflation.
This brings us to industries that are selling at a discount, of which, broadcasting is one, at an EV to EBITDA ratio of 7.31. According to The Business Research Company, the television and radio broadcasting markets have expanded significantly in recent years. It is expected to grow from $439.41 billion in 2023 to $466.83 billion in 2024, at a CAGR of 6.2%. According to Future Market Insights, North America has the largest market share globally for television broadcasting services, followed by Asia Pacific.
The introduction of digital transmission and the Internet caused a major transformation in the television industry. Broadcast television and cable coexist with cable substitutes like HBO Max, Netflix, and Amazon Prime Video. Many others have completely cut their cable connections, opting to get all of their television needs met online. The Motion Picture Association of America reports that the film and television industries have a major economic impact, employing 2.5 million people annually and paying out over US$ 188 billion in compensation.
Another industry trading at a reduced price is air transportation, which has an EV to EBITDA ratio of 6.17. The Business Research Company reports that the size of the air transport market has expanded dramatically in recent years. The projected CAGR is 6.8%, which would see it rise from $1,016.38 billion in 2023 to $1,085.37 billion in 2024. Furthermore, it is anticipated that during the next several years, the size of the air transport sector will rise significantly. With a 6.5% CAGR, it will reach $1,394.51 billion in 2028.
The future expansion of the air transport market is anticipated to be driven by the growth of e-commerce and online shopping. For example, in September 2022, the US Department of Commerce’s International Trade Administration reported that consumer e-commerce accounted for 30% of the UK’s total retail market (up from 20% in 2020), with over $120 billion in e-commerce sales annually. In the UK, 82% of individuals will have made at least one online transaction by 2021.
Methodology:
We selected stocks with an institutional ownership of over 70% and a PE ratio under 10, as of June 25 for our list of 10 Best Very Cheap Stocks To Buy Now According To Hedge Funds. We narrowed down our selection to 10 stocks that were the most widely held by institutional investors and ranked them in ascending order of the number of hedge funds that have stakes in them as of Q1 of 2024. In cases where two or more stocks have the same number of hedge funds, we’ve used the PE ratio as a tie-breaker.
In order to identify cheap stocks, we searched for companies with a strong earnings track record by evaluating their EPS over the last two to three years. Secondly, we only considered stocks that received “buy” or “strong buy” recommendations from analysts.
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 room full of medical personnel collaborating on a treatment plan for a patient.
Tenet Healthcare Corporation (NYSE:THC)
Number of Hedge Fund Holders: 63
PE Ratio as of August 1: 5.74
Tenet Healthcare Corporation (NYSE:THC) is a diversified healthcare services company headquartered in Dallas, Texas. It owns and operates acute care hospitals, ambulatory surgical centers, diagnostic imaging centers, and other healthcare facilities through its subsidiaries and affiliates. Hospital Operations, Ambulatory Care, and Conifer are the business segments through which it operates.
THC is viewed as a particularly inexpensive company to purchase right now since its PE ratio of 5.74 is less than the weighted average PE ratio of 38.73 for healthcare facilities.
Compared to the industry average of 1.76 PEG ratio (5 years projected), THC seems to be at a discounted price.
It has 63 hedge fund holders as of Q1 2024. The company’s largest stakeholder, Thomas Bailard’s Bailard Inc, has 5,496 shares, valued at $731,133.
After Q2 2024 results were released, Tenet’s stock increased by about 5%, bringing its year-to-date gain to more than 90%. Better-than-expected second-quarter earnings and an upbeat updated forecast sent Tenet Healthcare’s shares to their highest point in more than 20 years. Increasing patient numbers and service fees drove the company’s outstanding success.
Tenet beat estimates with an adjusted EPS of $2.31 for the second quarter. During the same quarter last year, net operating revenue climbed by 0.8% to $5.1 billion, while adjusted EBITDA improved by $102 million to $945 million, demonstrating robust operational efficiency. The prior range of $20 billion to $20.4 billion has been revised upward, and the company now forecasts full-year operating revenue between $20.6 billion and $21.0 billion.
In Q2 2024, increased spending on patient care propelled the ambulatory segment’s notable 21.1% revenue gain, which reached $1.14 billion as compared to. the same quarter last year. On the other hand, despite an increase in admissions, hospital segment revenue fell by 4.3% to $3.96 billion as a result of a reduction in facilities.
Investments in AI technology and ambulatory surgery centers (ASCs) are what are driving Tenet’s expansion. In its ASC company, the company expects long-term volume growth of 1% to 3%. Tenet has also been aggressively repurchasing shares and paying down debt to improve its financial standing.
Mizuho Securities has maintained its Outperform rating and changed its price objective for Tenet Healthcare from $145 to $170. This news comes after a robust quarter, especially in the acute care and ambulatory segments. The price expectations set by Deutsche Bank and Citi for Tenet have also been increased. Both Deutsche Bank and Citi maintained their buy recommendations, with Deutsche Bank raising its objective to $160 and Citi setting a new goal of $171. Based on Tenet’s strong second-quarter results and revised 2024 outlook, which includes a projected $3.9 billion in EBITDA, these changes have been made.
Meridian Contrarian Fund explained why Tenet Healthcare Corporation (NYSE:THC) shares jumped nearly 40% in its first quarter 2024 investor letter:
Tenet Healthcare Corporation (NYSE:THC) is a top-ten U.S. operator of hospitals, outpatient surgery centers, and healthcare business process services. We initiated our position in late 2022 as we believed that the market’s short-term focus on COVID-caused staffing and admissions challenges overshadowed the value of Tenet’s long-term strategy of growing outpatient surgery centers. Outpatient surgery provides a cost-effective and patient-centered level of care that patients prefer and a Caroline business model that drives significantly higher returns to Tenet above that of the legacy hospital model. Tenet surged nearly 40% in the first quarter as the company executed nine hospital sales at valuations above where the stock trades.
These divestitures drive three improvements to incremental return on equity by allowing Tenet to reduce debt, accelerate the corporate shift to higher-returning outpatient surgery centers, and free more capital to be returned to shareholders via stock buybacks. While the divestitures temporarily depress Tenet’s earnings growth, it accelerates our core thesis. We remain optimistic about the company’s newfound capital flexibility, and during the quarter we maintained our holding in Tenet.
Greenlight Capital stated the following regarding Tenet Healthcare Corporation (NYSE:THC) in its first quarter 2024 investor letter:
“We had two material winners in the long portfolio. Tenet Healthcare Corporation (NYSE:THC) rose 39%, benefitting from ongoing strength in healthcare utilization and the sale of additional hospitals at premium multiples, suggesting that the stock was significantly undervalued.”
Tenet Healthcare is in a good position to develop because of its impressive quarterly performance, smart capital management, and optimistic analyst projections. The firm is more appealing to investors because of its emphasis on growing its ASC segment and utilizing technology.
Overall THC ranks 4th on our list of the very cheap stocks to buy. You can visit 10 Best Very Cheap Stocks To Buy Now According To Hedge Funds to see the other very cheap stocks to buy that are on hedge funds’ radar. While we acknowledge the potential of THC 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 THC 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.