In this article we will take a look at the top 10 health insurance stocks to buy. You can skip our detailed analysis of these companies and go directly to the Top 5 Health Insurance Stocks to Buy.
The global health insurance market has been given a boost by the COVID-19 pandemic as online sales channels, social media marketing, and increased awareness about health problems drive spending on healthcare. According to a report by Fortune Business Insights, the health insurance industry is expected to grow at a compound annual growth rate of more than 5% from over $2 trillion in 2021 to $3 trillion by the end of this decade. This growth will be driven by individual care plans that are fast outpacing sales of other insurance policies.
One notable stock that investors can buy to ride this momentum in the health sector is Humana Inc. (NYSE: HUM), the Louisville-based health insurance firm that is planning to become the largest home-based care provider in the United States. Humana Inc. (NYSE: HUM) recently announced the acquisition of Kindred At Home, a healthcare firm that markets services such as skilled nursing and rehabilitation to individuals at their homes. Humana stock has outperformed the market in recent weeks and reached a 52-week high on May 10.
Another interesting pick in the health industry is CVS Health Corporation (NYSE: CVS), the Woonsocket-based firm that the smart money seems to be favoring. CVS Health Corporation (NYSE: CVS) announced the launch of a $100 million venture capital fund in late April that will aim to partner with technology-based firms that have the potential to disrupt the digital care sector. The company has also already made more than 20 direct investments in early stage tech-focused health firms that have delivered strong returns.
Any mention of the top stocks in the health insurance market is incomplete without discussion on UnitedHealth Group Incorporated (NYSE: UNH), the Minnetonka-based firm that has a market cap of close to $400 billion and reported more than $257 billion in annual revenue last year. UnitedHealth Group Incorporated (NYSE: UNH) stock has been surging on the back of market-beating first quarter results for 2021 and bullish analyst ratings. On April 21, investment advisory Argus gave the company stock a price target of $450, implying a 13% upside potential.
Favorable reimbursement policies look set to help North America and Europe dominate the health insurance industry in the coming years. Overall, an ageing population across the globe, increasingly suffering from diseases such as arthritis, type 2 diabetes, cancer, and heart problems, will also spur insurance market growth. A lack of insurance awareness, especially in developing economies, might offset some of these gains. The tech sector also seems to be playing a bigger role in the health industry with each passing year.
This tech-enabled disruption has also touched other parts of the economy, like the finance world. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Photo by Martha Dominguez de Gouveia on Unsplash
With this context in mind, here is our list of the top 10 health insurance stocks to buy.
Top Health Insurance Stocks to Buy
10. Clover Health Investments, Corp. (NASDAQ: CLOV)
Number of Hedge Fund Holders: 23
Clover Health Investments, Corp. (NASDAQ: CLOV) is a Tennessee-based health insurance firm founded in 2014. It is ranked tenth on our list of top health insurance stocks to buy. The company markets preferred provider organization and health maintenance organization health plans through a software-based setup. Vivek Garipalli is the co-founder of Clover Health. Before taking up his executive role at the firm, he was also a founding member of CarePoint Health, a fully integrated healthcare system in New Jersey, in 2008.
Clover Health Investments, Corp. (NASDAQ: CLOV) posted quarterly earnings results for the first three months of 2021 on May 17, reporting a revenue of over $200 million, up 21% compared to the revenue over the same period last year and beating market predictions by over $7 million.
The company also issued guidance numbers for the rest of the fiscal year, saying that total revenues were expected to be up to $830 million against the consensus of $822 million, inclusive of a preliminary estimate of almost $30 million of revenue generated from direct contracting.
Just like Humana Inc. (NYSE: HUM), CVS Health Corporation (NYSE: CVS), and UnitedHealth Group Incorporated (NYSE: UNH), Clover Health Investments, Corp. (NASDAQ: CLOV) is a top health insurance stock to buy.
9. Cigna Corporation (NYSE: CI)
Number of Hedge Fund Holders: 53
Cigna Corporation (NYSE: CI) is a Connecticut-based health insurance firm founded in 1981. It is placed ninth on our list of top health insurance stocks to buy. Cigna stock has returned more than 38% to investors over the past twelve months. In addition to insurance plans, the firm markets commercial health services that include medical, pharmacy, behavioral health, dental, vision, health advocacy programs, as well as other products and services for insured and self-insured customers.
On May 7, Cigna Corporation (NYSE: CI) posted earnings for the first quarter of 2021, reporting earnings per share of $4.73, beating market predictions by $0.35. The revenue over the period was $41 billion beating market estimates by $730 million.
Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Glenview Capital is a leading shareholder in Cigna Corporation (NYSE: CI) with 1.8 million shares worth more than $449 million.
Just like Humana Inc. (NYSE: HUM), CVS Health Corporation (NYSE: CVS), and UnitedHealth Group Incorporated (NYSE: UNH), Cigna Corporation (NYSE: CI) is a top health insurance stock to buy.
In its Q4 2020 investor letter, Artisan Partners Limited Partnership, an asset management firm, highlighted a few stocks and Cigna Corporation (NYSE: CI) was one of them. Here is what the fund said:
“New purchases include Cigna. Cigna is a leading managed care company which operates through the following major segments: health services, integrated medical, international markets and group disability. It’s one of the few managed care organizations in the United States with the scale and size to compete effectively. Cigna has recently focused on deleveraging its balance sheet and further diversifying its business, after completing the Express Scripts acquisition in late 2018. Additionally, the company has partnered with Amazon, which will offer two new pharmacy options—including a self-pay offering. Cigna will administer the self-pay option through its health services division Evernorth. The partnership should be one of many strong earnings drivers for Cigna, which we believe is currently trading at an attractive valuation.”
8. Centene Corporation (NYSE: CNC)
Number of Hedge Fund Holders: 53
Centene Corporation (NYSE: CNC) is a Missouri-based health insurance company founded in 1984. It is ranked eighth on our list of top health insurance stocks to buy. Centene stock has returned more than 13% to investors over the past year. The company also has a managed care division that offers health coverage to people through government subsidized programs, state-funded health insurance programs for children, as well as long-term services and support for foster care, and care of the aged, blind, or disabled individuals.
In earnings results for the first three months of 2021, posted in late April, Centene Corporation (NYSE: CNC) reported earnings per share of $1.63, beating market predictions by $0.10. The revenue for the first quarter of 2021 was just shy of $30 billion, up 15% year-on-year.
In its Q3 2020 investor letter, FPA Capital Fund, an asset management firm, highlighted a few stocks and Centene Corporation (NYSE: CNC) was one of them. Here is what the fund said:
“CNC was the Fund’s 2nd worst performer for the quarter. The company is a managed care organization (discussed in more detail in prior commentaries). The stock declined on election uncertainty and on the increased likelihood that the Supreme Court might strike down the Affordable Care Act due to the death of Supreme Court Justice Ginsburg. CNC does have the headline risk, but the stock is trading at 10x 2021 price to earnings multiple versus its long term historical average of 16x. 6 Its COVID-19 costs appear to be in line with expectations and the worst long term effect from a repeal of the Affordable Care Act is estimated to be a 10% hit to earnings. 7 We believe that any likely political scenarios would not cause a major longterm disruption to the company while its valuation appears to price in a much more dire scenario.”
7. Anthem, Inc. (NYSE: ANTM)
Number of Hedge Fund Holders: 58
Anthem, Inc. (NYSE: ANTM) is an Indiana-based health insurance firm founded in 2004. It is placed seventh on our list of top health insurance stocks to buy. Anthem stock has returned more than 42% to investors over the past twelve months. The firm has more than 40 million customers and is one of the largest for-profit healthcare firms in the United States. Anthem, Inc. (NYSE: ANTM) has more than three major operating divisions that include commercial and specialty business, government business, IngenioRx, and others.
Anthem, Inc. (NYSE: ANTM) posted earnings results for the first three months of 2021 on April 21, reporting a revenue of more than $32 billion, up more than 9% year-on-year, but missing market estimates by more than $910 million.
Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Eagle Capital Management is a leading shareholder in Anthem, Inc. (NYSE: ANTM) with 2.2 million shares worth more than $797 million.
Just like Humana Inc. (NYSE: HUM), CVS Health Corporation (NYSE: CVS), and UnitedHealth Group Incorporated (NYSE: UNH), Anthem, Inc. (NYSE: ANTM) is a top health insurance stock to buy.
In its Q4 2020 investor letter, Nomadic Value Partners, an asset management firm, highlighted a few stocks and Anthem, Inc. (NYSE: ANTM) was one of them. Here is what the fund said:
“In mid-December we sold our position in Anthem (NYSE: ANTM). At the end of Q3 the Blue Cross Blue Shield Association (BCBSA), the umbrella organization for “blues” across the country, made a preliminary proposal to settle a multi-year anti-trust case for $2.67 billion. This payment is to be made proportionate by each BCBSA health plan. The BCBSA covers about 100 million members nationwide and ANTM represents about 40% of total BCBSA membership. ANTM’s proportionate payment could be a $1 billion charge, nearly 25% of its expected 2020 earnings. Interestingly, the share price rallied on the news because included in the settlement proposal was BCBSA agreeing to lift restrictions on local BCBS plan geographic boundaries. BCBS plans can begin to horizontally integrate and compete in markets historically excluded from reach.”
The more I’ve thought about ANTM’s position in this hypothetical marketplace the more I’ve become less optimistic on them. While consolidation certainly brings better economics to the surviving health plan, I think it is only realistically available to much smaller companies. Looking back at anti-trust cases within healthcare over the last decade, the large health insurance companies are generally blocked from major horizontal acquisitions. Why would this change? This leaves ANTM competing in an increasingly crowded marketplace and the only strategy left to grow is to super charge their vertical integration. ANTM is behind in integration, and I don’t like situations where a company is being forced to play catch up.”
6. Humana Inc. (NYSE: HUM)
Number of Hedge Fund Holders: 53
Humana Inc. (NYSE: HUM) is a Kentucky-based health insurance firm founded in 1961. It is ranked second on our list of top health insurance stocks to buy. Humana stock has returned more than 13% to investors over the past twelve months. The company is among the largest health insurance providers in the United States and is also a member of the Fortune 500. The company has more than 17 million members in medical benefit plans and more than 5 million utilizing specialty products marketed by the firm.
In quarterly earnings for the first three months of 2021, posted in April, Humana Inc. (NYSE: HUM) reported earnings per share of $7.67, beating market predictions by $0.63. The revenue for the period was over $20 billion.
At the end of the fourth quarter of 2020, 59 hedge funds in the database of Insider Monkey held stakes worth $3.9 billion in Humana Inc. (NYSE: HUM), down from 61 in the preceding quarter worth $4.8 billion.
Just like UnitedHealth Group Incorporated (NYSE: UNH) and CVS Health Corporation (NYSE: CVS), Humana Inc. (NYSE: HUM) is a top health insurance stock to buy.
In its Q1 2021 investor letter, Oakmark Funds, an asset management firm, highlighted a few stocks and Humana Inc. (NYSE: HUM) was one of them. Here is what the fund said:
“The third new purchase was Humana, the industry leader and near pure play in the fastest growing sector of managed care, Medicare Advantage. Each year, more seniors choose Medicare Advantage over traditional Medicare due to the compelling combination of lower costs and expanded benefits. Humana’s scale advantages and focus on senior care allow the company to make targeted investments in its members’ health, resulting in fewer unnecessary hospitalizations and lower chronic care costs. Much of these savings are then reinvested in the health plan, resulting in a continuously improving customer value proposition. The company’s brand also resonates well in the marketplace and has helped drive double-digit annual membership growth over the past decade—well above the rest of the industry. Further, we believe Humana has a long runway ahead as it benefits from an aging population and continued conversion of the approximately 60% of seniors who are still enrolled in traditional Medicare. Yet Humana’s shares are currently trading at a nearly 20% discount to the S&P 500 earnings multiple, which we believe doesn’t give the company enough credit for its durable competitive advantages and strong secular growth outlook.”
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Disclosure: None. Top 10 Health Insurance Stocks to Buy is originally published on Insider Monkey.
