We recently published a list of the 10 best healthcare stocks to buy by hedge funds. In this article, we'll take a look at how UnitedHealth Group Incorporated (NYSE:UNH) stands compared to other best health care stocks to buy, according to hedge funds.
Resilience and growth in the U.S. health sector
Investing in healthcare stocks is typically seen as protection during tough economic times. This is because people typically do not reduce their use of prescription drugs and other necessary health services, even during economic hardship. The Centers for Medicare and Medicaid Services (CMS) predicts that national health care spending will increase at an average rate of 5.6% between 2027 and 2032, reaching an estimated $4.8 trillion in 2023. are.
The healthcare sector is rapidly growing in the United States. The country's health spending will increase by 7.5% in 2023, outpacing nominal GDP growth in the same year, according to a new analysis. Last year, a large portion of the population, about 93.1% of Americans, had health insurance, which contributed to the increase in health spending. The U.S. government's projected annual growth rate of 5.6% in health spending from 2023 to 2032 is expected to exceed GDP growth of 4.3%.
Overcoming challenges and opportunities in the global healthcare market
The global healthcare industry is expanding, with McKinsey forecasting profits to grow from $583 billion in 2022 to more than $800 billion by 2027, at a CAGR of 7%. Despite challenges in 2023 due to labor shortages and inflation, a recovery is expected in 2024, creating attractive investment opportunities. AI investment in healthcare is rapidly increasing, with $2.8 billion already invested in 2024 and expected to exceed $11 billion by the end of the year. Deloitte's 2024 Outlook highlights investor confidence that AI is expected to save US $360 billion in healthcare costs over the next five years through advances in patient care, diagnosis, and management. .
In 2023, the healthcare sector faced challenges and lagged behind other sectors as investors adjusted for higher interest rates. But GLP-1 drugs for weight loss have significantly boosted the income statements of some health companies. Performance in the sector has been mixed, with some companies struggling with tough comparisons after revenue from COVID-19 vaccines and treatments exceeded $100 billion in 2022. Rising interest rates also weighed on biotechs, and while providers faced the effects of lingering COVID-19, distributors turned around and improved. Fundamentals and Opioid Litigation Solutions. However, the Fed's easing of interest rate policy (the last cut was 50 basis points) is expected to give a boost to the healthcare market.
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our methodology
Our methodology ranked the best healthcare stocks to buy according to hedge funds, based on the total number of hedge fund holders as of Q2 2024.
“Why are we interested in stocks that hedge funds invest in? The reason is simple. Our research shows that by mimicking the top stock picks of the best hedge funds, we outperform the market. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter and has returned 275% since May 2014, beating the benchmark by 150%. points (see here for details).
Senior medical professional giving advice to patient in clinic.
UnitedHealth Group Incorporated (NYSE:UNH)
Number of hedge fund holders: 114
Minnesota-based UnitedHealth Group (NYSE:UNH) is a diversified healthcare company that operates through two primary segments: UnitedHealthcare and Optum. At its core, UnitedHealth Group provides health insurance and medical services to millions of individuals and businesses across the United States.
Since 2011, UnitedHealth's revenue has more than tripled, rising from just over $101 billion to nearly $372 billion by 2023. In the second quarter of 2024, the company reported revenue of $98.8 billion, an increase of 6.41% year over year. In addition, operating cash flow reached $6.7 billion.
United Health Group is diversifying its business to deliver more value to its partners and patients, attracting investors through expansions into areas such as home health care and analytics. Andvari Associates highlighted these strengths in its Q2 2024 investor letter, stating:
“UnitedHealth Group Incorporated (NYSE:UNH) is one of the largest service providers and distributors in the $5 trillion U.S. healthcare market. United Airlines' Optum division provides pharmacy benefits services and other insights and services to leading companies in the healthcare sector: physicians, hospitals, government agencies, and life sciences companies.
We are a company that carries strong winds on its back, providing essential services. More than 2 million people enroll in Medicare and Medicare Advantage each year. As healthcare spending increases each year, the value of the services and insights Optum provides will only increase. United Airlines is a solid company with a high return on equity in the teens. After reinvesting in its business, United Airlines will likely return $16 billion in dividends and stock buybacks from its roughly $380 billion revenue base in 2024. ”
As of Q2 2024, approximately 114 hedge fund holders held shares, with Fisher Asset Management being the largest shareholder with shares valued at $1,573,649,573. Analysts also have a bullish view on UNH, giving it a “strong buy” rating. Sixteen Wall Street analysts have set 12-month price targets for UnitedHealth, with an average price target of $571.47. The forecast range is from a high of $635.00 to a low of $481.00. This average target represents a -0.61% change from the current price of $575.00.
Overall, UNH ranks #1 among the best healthcare stocks to buy according to hedge funds. While we appreciate UNH's potential as an investment, we believe AI stocks have a better chance of delivering higher returns and in a shorter time frame. If you're looking for AI stocks with more promise than UNH but trading at less than 5x earnings, check out our report on the cheapest AI stocks.
Read next: $30 trillion opportunity: 15 humanoid robot stocks to buy, according to Morgan Stanley and Jim Cramer, says NVIDIA has 'become a wasteland.'
Disclosure: None. This article was originally published on Insider Monkey.
