We recently published a list of 8 Most Promising Healthcare Stocks According to Hedge Funds. In this article, we are going to take a look at where UnitedHealth Group Incorporated (NYSE:UNH) stands against other most promising healthcare stocks according to hedge funds.
The Healthcare Sector: Growth, Innovation, and the Impact of AI
The healthcare sector depends on medical technology advancements, particularly devices used in disease prevention, diagnosis, and treatment. Unlike pharmaceuticals, medical devices work through physical or mechanical means rather than chemical processes. Key products include pacemakers, imaging equipment, dialysis machines, and implants.
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 country’s 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 pressure 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.
According to research published this month by Silicon Valley Bank, investments in artificial intelligence (AI) in the healthcare sector have also increased dramatically in recent years, expanding at a rate twice as fast as the IT sector. According to the report, businesses using AI account for one out of every four dollars spent in the healthcare industry. The Silicon Valley Bank anticipates that over $11 billion will be spent in the AI healthcare industry this year, with an estimated $2.8 billion already invested in 2024.
Investor confidence in the healthcare industry is still high, according to Deloitte’s 2024 Global Health Care Sector Outlook. The industry received $31.5 billion in private equity funding between 2019 and 2022. Over the next five years, the United States healthcare sector might save almost $360 billion thanks to the numerous businesses integrating artificial intelligence into their operations. Shortly, AI is probably going to have a big impact on medical administration, diagnosis, treatment, and patient care. Predictive analytics and health record automation are expected to further improve the effectiveness of healthcare providers and their offerings.
In recent months, growing economic uncertainty has prompted a shift toward more defensive stocks, with healthcare emerging as a key beneficiary. The broader market’s healthcare sector has surged by over 3.6% and in the past year, it has returned over 11%. In view of this, we will take a look at some of the most promising stocks from the healthcare sector.
Our Methodology
For our methodology, we picked the most weighted stocks from the iShares Global Healthcare ETF and then ranked them based on their total number of hedge fund holders as of Q3 2024, as tracked by the Insider Monkey database.
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: 112
UnitedHealth Group Incorporated (NYSE:UNH) is a diversified healthcare company with two main segments: UnitedHealthcare and Optum. The company provides health insurance across the U.S., offering various plans and partnering with over 1.3 million healthcare providers and 6,700 hospitals. Optum focuses on healthcare services powered by technology and data analytics, supporting people, partners, and providers to enhance health outcomes.
UnitedHealth Group Incorporated (NYSE:UNH) has introduced a new national gold card scheme to lower administrative costs and raise the standard of care. For eligible in-network providers, this program will result in a 500,000 yearly decrease in prior authorizations.
AI is also significantly contributing to increased productivity and better patient care for UnitedHealth Group Incorporated (NYSE:UNH). AI is being used by advanced practice physicians to compile patient histories, which frees up time for more hands-on patient care. To improve service and save time, nurses are employing GenAI to evaluate documentation more effectively. Additionally, it powers provider searches and client contacts, freeing up advocates to concentrate on more intricate questions and enhance the customer experience.
UnitedHealth Group Incorporated (NYSE:UNH) generated $100.82 billion in revenue in the third quarter of 2024, a 9.16% increase over the same period the previous year. Strong pharmacy care offerings, increased pharmacy benefits management from new clients, and growing specialized services drove OptumRx’s $5 billion increase in revenue to over $34 billion. Revenues from OptumInsight remained steady at about $5 billion, and the approximately $33 billion revenue backlog grew by over $1 billion over the previous year.
Invesco Growth and Income Fund stated the following regarding UnitedHealth Group Incorporated (NYSE:UNH) in its Q2 2024 investor letter:
“UnitedHealth Group Incorporated (NYSE:UNH): Like many managed care providers, United Health has come under pressure from rising medical costs and higher-than-expected utilization. The stock is currently undervalued based on our analysis. We view the company as a high-quality compounder with secular growth opportunities in the managed care segment. The US Presidential election may cause additional near-term uncertainty, but we believe United Health will be able to rebound once pricing and utilization issues normalize.”
Overall, UNH ranks 1st on our list of most promising healthcare stocks according to hedge funds. While we acknowledge the potential of healthcare companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. 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.