What Gives Elevance Health (ELV) an Attractive Opportunity in The Large Cap Space?

River Road Asset Management, an investment management company released its “River Road Large Cap Value Select Fund” Q4 2024 investor letter. A copy of the letter can be downloaded here. In the fourth quarter, AMG River Road Large Cap Value Select Fund returned 0.43% compared to (1.98%) return for the Russell 1000® Value Index. For the year 2024, the fund returned 24.59% significantly outperforming Index return of 14.37%. Stocks rallied in November after a Republican victory but declined sharply following hawkish Fed comments. Shorter duration stocks, including small caps and value, lost most of their post-election gains by the end of December. For more information on the fund’s best picks in 2024, please check its top five holdings.

In its fourth quarter 2024 investor letter, River Road Large Cap Value Select Fund emphasized stocks such as Elevance Health, Inc. (NYSE:ELV). Elevance Health, Inc. (NYSE:ELV) is a health benefits company that operates through Health Benefits, CarelonRx, Carelon Services, and Corporate & Other segments. The one-month return of Elevance Health, Inc. (NYSE:ELV) was 8.84%, and its shares lost 16.70% of their value over the last 52 weeks. On March 27, 2025, Elevance Health, Inc. (NYSE:ELV) stock closed at $431.95 per share with a market capitalization of $98.205 billion.

River Road Large Cap Value Select Fund stated the following regarding Elevance Health, Inc. (NYSE:ELV) in its Q4 2024 investor letter:

“Another bottom contributor during the quarter was Elevance Health, Inc. (NYSE:ELV), the largest managed care organization in the U.S. with operations spanning commercial insurance, Medicaid (where it ranks second nationally), and pharmacy benefits management. Operating under the prestigious Blue Cross Blue Shield brand, ELV leverages its unmatched national scale and dominant local market presence (~35% share in 14 core markets) to maintain the lowest cost position across 70% of its footprint. We believe this cost advantage creates a powerful earnings flywheel, as savings shared with members drive higher retention rates and strengthen negotiating power with health care providers, enabling the company to deliver 14% annual earnings growth over the past decade with 12-15% growth projected ahead. Despite this compelling growth profile, the stock trades at a significant discount to the broader market, presenting an attractive opportunity in the large cap space.

The stock declined in Q4 as the company’s Medicaid business experienced unprecedented medical cost increases, running 3-5x historical rates due to higher utilization among members rejoining after redetermination, while state reimbursement rates lagged actual costs. These pressures led to a 200 basis point increase in the Medical Loss Ratio and forced management to reduce 2024 and 2025 earnings guidance by 10% and mid-single digits, respectively. Industry- wide challenges, including proposed private mailbox (PBM) legislation and Medicare Star Rating changes, further pressured the stock during an election year. Management expects cost pressures to normalize through 2025 as state rates catch up, while strong performance in individual exchange, Carelon, and the commercial business (35% of operating profit) was overshadowed by these near-term concerns. Despite the temporary setback, we think the company maintains its ability to deliver 12% average annual earnings growth over time. We maintained the position.”

Is Elevance Health, Inc. (ELV)The Best Healthcare Dividend Stock to Invest in?

A medical professional working at a computer, utilizing the company’s digital solutions to improve care quality for consumers.

Elevance Health, Inc. (NYSE:ELV) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 73 hedge fund portfolios held Elevance Health, Inc. (NYSE:ELV) at the end of the fourth quarter compared to 67 in the third quarter. While we acknowledge the potential of Elevance Health, Inc. (NYSE:ELV) 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 as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

We covered Elevance Health, Inc. (NYSE:ELV) in another article, where we shared the list of best dividend stocks from the healthcare sector. Artisan Select Equity Fund increased its holdings in Elevance Health, Inc. (NYSE:ELV) in Q4 2024. In addition, please check out our hedge fund investor letters Q4 2024 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.