We recently published a list of 10 Best Healthcare Stocks To Buy According to Hedge Funds. In this article, we are going to take a look at where UnitedHealth Group Incorporated (NYSE:UNH) stands against the other best healthcare stocks to buy according to hedge funds.
Resilience and Growth in the U.S. Healthcare Sector
Investing in healthcare equities is typically seen as protective during difficult economic times. This is because, even in times of financial hardship, people usually do not reduce their usage of prescription drugs or other necessary healthcare services. The Centers for Medicare and Medicaid Services (CMS) estimates that national healthcare expenditures would grow at an average rate of 5.6% between 2027 and 2032, with spending on healthcare expected to reach an estimated $4.8 trillion in 2023.
In America, the healthcare sector is booming. A new analysis showed that the Country’s healthcare spending rose by 7.5% in 2023, outpacing the nominal GDP growth rate of that year. A significant portion of the population, approximately 93.1% of Americans, had health insurance last year, which helped to drive up healthcare spending. The US government’s predicted 5.6% annual growth in healthcare spending between 2023 and 2032 is expected to surpass the 4.3% growth rate of the GDP.
Navigating Challenges and Opportunities in the Global Healthcare Market
The global healthcare industry is expanding, with McKinsey predicting profits to grow from $583 billion in 2022 to over $800 billion by 2027, at a 7% CAGR. Despite challenges in 2023 from labor shortages and inflation, 2024 is expected to recover, creating an attractive investment opportunity. AI investments in healthcare have surged, with $2.8 billion already invested in 2024 and expectations of over $11 billion by year-end. Deloitte’s 2024 outlook highlights high investor confidence, with AI poised to save $360 billion in U.S. healthcare over the next five years through advancements in patient care, diagnosis, and administration.
In 2023, the healthcare sector faced challenges as investors adjusted for higher interest rates, causing it to lag behind other sectors. However, GLP-1 drugs for weight loss significantly boosted some health companies’ income statements. The sector saw mixed performance, with some companies struggling due to tough comparisons after the COVID-19 vaccine and therapeutic revenues exceeded $100 billion in 2022. Rising interest rates also pressured biotechnology, and providers faced lingering COVID-19 impacts, although distributors improved with better fundamentals and opioid litigation resolutions. However, as fed’s easing of rate policy, with the last cut being that of 50 basis points, the healthcare market is expected to boost.
Our Methodology
For our methodology, we have ranked the best healthcare stocks to buy according to hedge funds based on their total number of hedge fund holders as of Q2 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 senior healthcare professional giving advice to a patient in a clinic.
UnitedHealth Group Incorporated (NYSE:UNH)
Number of Hedge Fund Holders: 114
UnitedHealth Group (NYSE:UNH), a Minnesota-based company, is a diversified healthcare company that operates through two main segments: UnitedHealthcare and Optum. At its core, UnitedHealth Group provides health insurance coverage and healthcare services to millions of individuals and businesses across the United States.
Since 2011, UnitedHealth’s revenue has more than tripled, growing from just over $101 billion to nearly $372 billion by 2023. In the second quarter of 2024, the company reported $98.8 billion in revenue, a 6.41% increase from the same quarter the previous year. Additionally, its operating cash flow reached $6.7 billion,
United Health Group has drawn investors through its expansion into sectors like home healthcare and analytics, diversifying its operations to offer more value to partners and patients. Andvari Associates emphasized these strengths in its Q2 2024 investor letter and said:
“UnitedHealth Group Incorporated (NYSE:UNH) is one of the largest providers and distributors of services in the $5 trillion U.S. healthcare market. The company provides services to employers, individuals, and those eligible for Medicare and Medicaid. United’s Optum segment provides pharmacy benefit services and a slate of other insights and services to the major players in the healthcare space: physicians, hospitals, government agencies, and life science companies.
This is a company that provides essential services and has a strong wind at its back. Over two million people enroll in Medicare and Medicare Advantage every year. With the increase in healthcare spending every year, the value of the services and insights provided by Optum will only increase. United is a solid business with high teen returns on its capital. After reinvesting in its businesses, United will likely return $16 billion in 2024 in the form of dividends and share repurchases off a revenue base of ~$380 billion.”
As of Q2 2024, around 114 hedge fund holders held stakes in the stock with Fisher Asset Management being the largest stakeholder with shares worth $1,573,649,573. Analysts are also bullish on UNH giving it a Strong Buy rating. 16 Wall Street analysts have set a 12-month price target for UnitedHealth, with an average target of $571.47. The forecasts range from a high of $635.00 to a low of $481.00. This average target indicates a -0.61% change from the current price of $575.00.
Overall, UNH ranks 1st among the best healthcare stocks to buy according to hedge funds. While we acknowledge the potential of UNH 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 UNH 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.
