11 Best Health Insurance Stocks to Buy
In this article we present the list of 11 Best Health Insurance Stocks to Buy. Click to skip ahead and see the 5 Best Health Insurance Stocks to Buy.
UnitedHealth Group Incorporated (NYSE:UNH), Humana Inc. (NYSE:HUM), and CVS Health Corporation (NYSE:CVS) are a few of the best health insurance stocks to buy now according to some of the most successful money managers in the world.
The healthcare industry is one of the strongest safe havens during lean economic periods, as personal health is one of the few things most people are unwilling to compromise on, regardless of the costs. That was certainly evident in 2022, as the Health Care Select Sector SPDR Fund greatly outperformed the Nasdaq, S&P 500, and Dow Jones.
According to the American Medical Association, healthcare industry spending rose by 2.7% in 2021 to hit $4.26 trillion, which accounted for over 18% of U.S. GDP. That latter figure is twice as high as the OECD average when it comes to healthcare costs as a percentage of GDP, which underlines the vital importance of health insurance in the U.S.
As healthcare costs in the country have ballooned, making it all but unaffordable out-of-pocket, health insurance has become an absolute necessity. Private health insurance covered $1.21 trillion worth of that $4.26 trillion in healthcare spending in 2021, more than Medicare and Medicaid, while just $433 billion in healthcare costs were paid out-of-pocket. Overall, more than 300 million Americans had some form of at least partial health insurance in 2022, a 40% increase since 1990.
Thanks to rising interest rates, the best health insurance stocks to buy have been among the top performing healthcare stocks in the world, with many leaders in the industry raking in record profits in 2022. In the third quarter, Molina Healthcare, Inc. (NYSE:MOH), UnitedHealth Group Incorporated (NYSE:UNH), The Cigna Group (NYSE:CI), and Centene Corporation (NYSE:CNC) all grew their quarterly profits by at least 26% year-over-year. In contrast, many of the biggest health system providers like HCA Healthcare, Inc. (NYSE:HCA) were seeing their profits implode, with HCA’s down 50% year-over-year.
That growing profit divide between payers and providers makes the best health insurance stocks to buy some of the most attractive in the entire healthcare industry. Check out the 15 Best Healthcare Stocks To Buy Now for some of the other top names in healthcare that hedge funds are bullish on.
With their profits reaching new heights, the best insurance stocks for dividends are also becoming more attractive on the basis of their yields. While they don’t match up to the yields of many of the 14 Best Healthcare Dividend Stocks to Buy, their payouts have been growing and in some cases they boast yields that now top 3%.
Both fairly-valued and undervalued insurance stocks alike will have plenty of room to grow in the future, as the global health insurance market is expected to grow at a CAGR of 9.9% between 2022 and 2030 according to Straits Research, hitting $5.28 trillion by 2030. The Asia-Pacific region is expected to be the fastest-growing during that period, at a 13.8% CAGR, which gives U.S. health insurers that operate in the region, like Cigna, huge growth opportunities.
Stokkete/Shutterstock.com
Our Methodology
The following best health insurance stocks to buy are ranked based on hedge fund sentiment. We follow a select group of hedge funds because Insider Monkey’s research has uncovered that their consensus stock picks can deliver outstanding returns.
All hedge fund data is based on the exclusive group of 900+ funds tracked by Insider Monkey that filed 13Fs for the Q1 2023 reporting period.
11 Best Health Insurance Stocks to Buy
11. Bright Health Group, Inc. (NYSE:BHG)
Number of Hedge Fund Shareholders: 6
CVS Health Corporation (NYSE:CVS), UnitedHealth Group Incorporated (NYSE:UNH), and Humana Inc. (NYSE:HUM) are some of the biggest health insurers in the world and have the hedge fund backing to prove it. One of the lesser known insurers on the market, and by far the least popular of the 11 best health insurance stocks to buy is Bright Health Group, Inc. (NYSE:BHG).
Just six hedge funds were long Bright Health Group, Inc. (NYSE:BHG) on March 31, down 75% from the second quarter of 2021, when the Tiger Global-backed insurer first went public through an IPO. Tiger Global has since unloaded its stake in the company, as has another Tiger Cub, Lee Ainslie of Maverick Capital. The stock’s lone significant bull is Jose Fernandez’s Stepstone Group, which owns just over 42 million shares.
It’s no wonder hedge funds have bailed on the stock, as Bright Health Group, Inc. (NYSE:BHG) has been in a world of hurt and facing serious liquidity concerns. As a result, the company is exploring the sale of its California Medicare Advantage business. RBC Capital lowered its price target on BHG to $13 from $80 at the end of May, while Goldman Sachs suspended its rating on the company in March (it previously had a ‘Sell’ rating on the stock), citing insufficient information in the company’s Q4 earnings report.
10. Molina Healthcare, Inc. (NYSE:MOH)
Number of Hedge Fund Shareholders: 41
Molina Healthcare, Inc. (NYSE:MOH) pushed to a new all-time high in hedge fund ownership during the first quarter of 2023 as several funds added the company to their 13F portfolios during the quarter. Among them were Jeffrey Talpins’ Element Capital Management and Alec Litowitz and Ross Laser’s Magnetar Capital.
It might surprise some people to know that Molina Healthcare, Inc. (NYSE:MOH) is the seventh-largest public health insurer in the world with 5.3 million members. While the company’s revenue and membership growth rates each came in at less than 5% year-over-year in Q1, EPS rose by 25.7% to $5.52. Analysts also expect Molina to have one of the best earnings growth rates in the industry over the next five years at a projected 17.8% annually.
Carillon Tower Advisers noted the bear case on Molina Healthcare, Inc. (NYSE:MOH) has been at least partially debunked according to the firm’s Q3 2022 investor letter:
“Molina Healthcare, Inc. (NYSE:MOH) also performed well as sentiment toward health maintenance organizations improved, both as a relatively defensive investment during uncertain times, and as the bear case on the stock was partially debunked with an extension of expanded enrollment for government health insurance programs.”
9. Willis Towers Watson Public Limited Company (NASDAQ:WTW)
Number of Hedge Fund Shareholders: 42
Unlike Molina Healthcare, hedge funds have been bailing on Willis Towers Watson Public Limited Company (NASDAQ:WTW) over the last year-and-a-half, with smart money ownership of the stock falling by 43% during that time. Jeffrey Smith’s Starboard Value took a stake at the height of the company’s hedge fund popularity but has maintained it since then and noted at the time that the company has underperformed but that it’s also undervalued.
Willis Towers Watson Public Limited Company (NASDAQ:WTW), which provides a broad range of insurance products to clients, has undergone numerous transformation initiatives in recent years. The company’s results are steadily improving, with free cash flow, margins, and organic revenue all rising, but the improvements have been slower than expected in some areas. Raymond James recently lowered its price target on WTW to $270 from $275 on the expectations that the company is likely to miss its 2024 revenue and earnings targets.
Artisan Partners likes the progress Willis Towers Watson Public Limited Company (NASDAQ:WTW) is making in closing the results gap to its peers, as noted in the fund’s Q3 2022 investor letter:
“Willis Towers Watson Public Limited Company (NASDAQ:WTW) shares rose 2% in the quarter. This modest increase made it one of our best performers during a difficult quarter. Absent significant news, the business continues to benefit from a hard insurance market. Results are still lagging peers, but the management team seems to be making progress in closing the gap. In the meantime, the company is returning significant amounts of capital to shareholders. Over the past eight months, it has repurchased $4 billion in stock and reduced the share count by 15%. And there is more on the way. This is a good business in a fantastic industry trading at 12X normalized earnings. We believe it is worth much more.”
8. MetLife, Inc. (NYSE:MET)
Number of Hedge Fund Shareholders: 43
MetLife, Inc. (NYSE:MET) is nearly as popular with hedge funds today as it was back in 2014, but smart money sentiment has gradually inched up since the final quarter of 2018, when just 25 funds were long MET. Ken Griffin’s Citadel Investment raised its stake in MetLife by 2,962% during Q1, giving it nearly 1.52 million shares by the end of the quarter.
While many health insurers have been enjoying big earnings boosts in recent quarters, that wasn’t the case for MetLife, Inc. (NYSE:MET) in Q1. Adjusted earnings fell by 30% year-over-year and widely missed estimates, while revenue dipped by 9% to $11.5 billion.
Analysts are bullish on MetLife, Inc. (NYSE:MET)’s $19.2 billion reinsurance agreement however, with RBC Capital analyst Mark Dwelle noting that it frees up capital, improves the company’s RBC ratio, and will allow it to execute incremental share buybacks. On the latter front, MetLife announced alongside the risk transfer transaction that it will indeed raise its share buyback allowance by a billion dollars to $4 billion.
7. Centene Corporation (NYSE:CNC)
Number of Hedge Fund Shareholders: 61
There’s been a greater than 20% increase in the number of funds long Centene Corporation (NYSE:CNC) over the past six quarters with the company in the midst of various transformation initiatives under new leadership. Stephen Dubois’ Camber Capital Management and Marc Majzner’s Clearline Capital are among the funds that added CNC to their 13F portfolios during Q1.
Centene Corporation (NYSE:CNC)’s medical membership climbed to 28.5 million in the first quarter, an 8.5% increase year-over-year. Its adjusted diluted EPS growth of 15.3% was also strong, though analysts expect a more modest 10.6% annual boost on that front over the next five years, less than the projected earnings growth for the broader industry. Partly due to those muted earnings expectations, CNC shares trade at a forward P/E of just 10.4x, well below the industry average.
The Heartland Mid Cap Value Fund is bullish on the steps Centene Corporation (NYSE:CNC)’s new management is undertaking to improve efficiency, as relayed in the fund’s Q1 2023 investor letter:
“Health Care. During the quarter, we added to our existing position in Centene Corporation (NYSE:CNC), one of the largest managed health care insurance providers in the U.S. and the largest player in Medicaid.
The stock has underperformed lately, as CNC faces headwinds on the reimbursement front, including a reduction in its 2024 Medicare Advantage reimbursements. The market also seems to fear a potential loss of insured lives when Medicaid eligibility, which was expanded during the pandemic, gets redetermined in 2023-2024.
CNC hasn’t historically delivered consistent results compared to other premier managed care companies. More recently, the company upgraded its leadership ranks, including the addition of a CEO, CFO, and COO from better-managed companies with a track record of value creation. The company is undertaking a series of self-help efforts, including expense reductions, divesting noncore assets, share buybacks, and operational improvements.
Despite this, the stock trades at just 10 times 2023 earnings and 9 times 2024 profits. We consider that valuation too punitive for a company that we expect to continue growing EPS at a 12-15% compound annual growth rate.”
6. The Progressive Corporation (NYSE:PGR)
Number of Hedge Fund Shareholders: 64
Hedge fund ownership of The Progressive Corporation (NYSE:PGR) skyrocketed by more than 50% between the middle of 2021 and the end of 2022, hitting an all-time high at the end of last year. It took a dip in the latest quarter however, with several funds unloading their PGR stakes after a nice run for the stock, which gained 45% between the start of 2022 and the end of March 2023.
The Progressive Corporation (NYSE:PGR) shares have dipped this year partly due to the surprising uptick in the company’s combined ratio during Q1, which rose to 99%. However, that appears to be primarily due to litigation laws involving lawsuits against insurers being updated in Florida, which led to a temporary surge in lawsuits being brought against insurers before the new laws were passed. Given its lengthy history of having a market-leading combined ratio, it shouldn’t be long before Progressive gets that figure back below its target mark of 96%.
The Ariel Appreciation Fund succinctly detailed why it sold off The Progressive Corporation (NYSE:PGR) in the fund’s Q1 2023 investor letter:
“Meanwhile, we successfully exited personal auto insurer, The Progressive Corporation (NYSE:PGR) as it surpassed our estimate of its private market value.”
Humana Inc. (NYSE:HUM), CVS Health Corporation (NYSE:CVS), and UnitedHealth Group Incorporated (NYSE:UNH) are some of the top insurers in the world that hedge funds love. See where they rank by clicking the link below.
Click to continue reading and see the 5 Best Health Insurance Stocks to Buy.
Suggested articles:
Disclosure: None. 11 Best Health Insurance Stocks to Buy is originally published at Insider Monkey.