We recently compiled a list of the 10 Best Health Insurance Stocks to Buy. In this article, we are going to take a look at where HCA Healthcare, Inc. (NYSE:HCA) stands against the other health insurance stocks.
The Healthcare Market: What does the future hold?
2023 posed significant challenges for the healthcare sector as investors adjusted their portfolios to adapt to a higher interest rate environment. This led to the sector underperforming compared to other segments of the equity market, particularly technology and communication services. The disruptive environment has understandably created some anxiety and pessimism about the future. Deloitte’s annual Health Care Outlook Survey reveals that only 3% of health system executives and 7% of health plan executives have a “positive” outlook for 2024, down from 15% and 40%, respectively, marking a significant year-over-year decline.
On the brighter side, the aging baby boomer generation, which constitutes 20% of the U.S. population, is driving a growing demand for healthcare services and products such as insurance, pharmaceuticals, medical devices, and hospital care. Projections indicate a notable increase in healthcare spending over the next decade. In the U.S., the Centers for Medicare & Medicaid Services forecasts a 5.6% annual growth in national health expenditure between 2023 and 2032. Similarly, in OECD countries, healthcare spending as a percentage of GDP is expected to rise from 8.8% to 10.2% by 2030. Alongside aging populations, the expanding middle class in emerging markets will also contribute to heightened demand for healthcare services.
One of the biggest news stories of the year was the rise of GLP-1 drugs as weight loss treatments, leading to significant outperformance by leading developers Eli Lilly & Company and Novo Nordisk (NVO) compared to their peers. Conversely, many companies experienced a severe downturn due to the post-COVID revenue drop, after vaccine and therapeutic sales neared $100 billion in 2022, resulting in challenging year-over-year comparisons. On another front, BlackRock, Inc. projects that the healthcare sector will have the highest 12-month forward earnings growth across all sectors on a year-on-year basis, with sales growth trailing only the consumer discretionary and information technology sectors.
The State of Health Insurance
Health insurance remains a prominent issue, especially in the United States. In 2022, over 300 million Americans, approximately 92% of the population, had health insurance. While the U.S. healthcare system features a blend of public and private insurers, private insurance comes out on top as the predominant form of coverage. That same year, more than half of insured individuals received private insurance through their employer, while approximately 36% were covered by public insurance programs like Medicare and Medicaid.
As of 2023, the US health insurance exchanges, created under the Affordable Care Act in 2014, market their tenth year of operation. Throughout this decade, the individual market has remained interesting, to say the least, having experienced annual fluctuations in insurer participation, pricing, and plan options. According to McKinsey, consumer engagement significantly increased by 25% from 2020 to 2022, reaching approximately 16 million participants, thus aligning with the enhanced subsidies introduced by the American Rescue Plan Act of 2021.
The global health insurance industry is poised for substantial growth in the coming years. According to a report, the global health insurance market is projected to achieve a Compound Annual Growth Rate (CAGR) of 9.9% from 2022 to 2030, reaching a market value of $5.28 trillion by 2030.
Insurance house, car and family health live concept. The insurance agent presents the toys that symbolize the coverage.
Our Methodology
To compile our list of the best health insurance stocks to buy, we sifted through multiple ETFs and internet rankings. We then analyzed Insider Monkey’s Q1 2024 database to select the stocks that were the most widely held by hedge funds. The following companies, ranked by the number of hedge funds holding their shares, provide health insurance services within the United States and/or internationally. Why do we care about what hedge funds do? 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 team of healthcare professionals in lab coats and masks meeting at a hospital ward.
HCA Healthcare, Inc. (NYSE:HCA)
Number of Hedge Fund Holders: 72
Founded in 1968, HCA Healthcare, Inc. (NYSE:HCA) is a leading healthcare provider known for its extensive network, owning and operating 182 hospitals and approximately 2,300 ambulatory care sites. These sites include surgery centers, free-standing emergency rooms, urgent care centers, and physician clinics.
HCA Healthcare, Inc. (NYSE:HCA) had a notable first quarter in 2024, showcasing strong financial results and significant growth in inpatient admissions, surgeries, and emergency room visits. Although there was a decline in outpatient surgery revenue, the company’s adjusted earnings per share increased to $5.36, reflecting nearly a 9% rise. Adjusted EBITDA climbed to $3.35 billion, a 5.7% year-over-year increase.
Following these developments, TD Cowen revised its financial projections for HCA, lowering the price target to $360 from the previous $371 while maintaining a Buy rating. This revision, which considers the first-quarter performance and a perceived softening in the trend environment, led TD Cowen to adjust its projections for HCA Healthcare, Inc. (NYSE:HCA)’s EBITDA in 2024 and 2025, as well as its 2025 enterprise value to EBITDA minus net corporate income target multiple.
As of Q1 2024, 72 hedge funds held positions in HCA Healthcare, Inc. (NYSE:HCA) The fund with the largest stake was First Eagle Investment Management, holding 4.5 million shares, which comprised 3.41% of their portfolio.
Diamond Hill Large Cap Strategy stated the following regarding HCA Healthcare, Inc. (NYSE:HCA) in its first quarter 2024 investor letter:
“Among our top individual contributors in Q1 were American International Group (AIG) and HCA Healthcare, Inc. (NYSE:HCA). Health care facilities operator HCA Healthcare benefited from a strong demand environment for hospitals in Q4, which is expected to continue into 2024 as nursing labor costs normalize and companies are able to improve margins tied to above-average physician costs. As a best-in-class operator with unique assets in favorable geographies, we believe the outlook for HCA Healthcare from here is favorable.”
Overall HCA ranks 5th on our list of the best health insurance stocks to buy. You can visit 10 Best Health Insurance Stocks to Buy to see the other health insurance stocks that are on hedge funds’ radar. While we acknowledge the potential of HCA 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 HCA 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.
