Is CVS Health Corporation (CVS) the Best Health Insurance Stock to Buy Right Now?

We recently compiled a list of Top 10 Health Insurance Stocks to BuyIn this article, we’ll look at how CVS Health Corporation (NYSE:CVS) stacks up against other health insurance stocks.

The healthcare market: what future?

The year 2023 has presented significant challenges for the healthcare sector as investors have adjusted their portfolios to adapt to a higher interest rate environment. As a result, the sector has underperformed other segments of the stock market, particularly technology and communications services. This disruptive environment has understandably created some anxiety and pessimism about the future. Deloitte’s annual Healthcare Outlook Survey found that just 3% of health system executives and 7% of health plan executives have a “positive” outlook for 2024, compared to 15% and 40%, respectively, marking a significant year-over-year decline.

On the bright side, the aging baby boomer generation, which makes up 20% of the U.S. population, is driving growing demand for healthcare services and products such as insurance, pharmaceuticals, medical devices, and hospital care. Projections indicate a significant increase in healthcare spending over the next decade. In the United States, the Centers for Medicare & Medicaid Services predicts that national healthcare spending will grow 5.6% annually between 2023 and 2032. Similarly, in OECD countries, healthcare spending as a share of GDP is expected to increase from 8.8% to 10.2% by 2030. Along with an aging population, the expanding middle class in emerging markets will also contribute to increasing demand for healthcare services.

One of the biggest stories of the year was the rise of GLP-1 drugs as weight-loss treatments, leading leading developers Eli Lilly & Company and Novo Nordisk (NVO) to outperform their peers. Conversely, many companies have experienced a severe slowdown due to post-COVID revenue declines after vaccine and therapeutic sales neared $100 billion in 2022, making year-over-year comparisons difficult. On another front, BlackRock, Inc. forecasts that the healthcare sector will see the strongest forward 12-month earnings growth of any sector on an annual basis, with sales growth trailing only the consumer discretionary and information technology sectors.

The state of health insurance

Health insurance remains a major issue, particularly in the United States. As of 2022, more than 300 million Americans, or about 92% of the population, had health insurance. Although the U.S. health care system is a mix of public and private insurers, private insurance is the most prevalent form of coverage. That same year, more than half of insured people had private insurance through their employer, while about 36% were covered by public insurance programs like Medicare and Medicaid.

In 2023, the U.S. health insurance exchanges, created in 2014 as part of the Affordable Care Act, will celebrate their tenth year of operation. Throughout this decade, the individual market has remained interesting, to say the least, with annual fluctuations in insurer participation, pricing, and plan options. According to McKinsey, consumer engagement increased significantly by 25% between 2020 and 2022, reaching approximately 16 million participants, aligning with the enhanced subsidies introduced by the American Rescue Plan Act of 2021.

The global health insurance industry is poised to witness substantial growth in the coming years. According to a report, the global health insurance market is expected to reach a compound annual growth rate (CAGR) of 9.9% between 2022 and 2030, reaching a market value of $5.28 trillion by 2030.

Home, car and family health insurance live. 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 combed through several ETFs and internet rankings. We then analyzed Insider Monkey’s Q1 2024 database to select the stocks most widely held by hedge funds. The following companies, ranked by the number of hedge funds that own their shares, provide health insurance services in 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 mimicking the best stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

CVS Health Corporation (NYSE:CVS)

Number of hedge fund holders: 54

CVS Health Corporation (NYSE: CVS) is a U.S.-based healthcare company that operates a large network of retail pharmacies and clinics across the country. The company oversees several brands, including CVS Pharmacy, a retail pharmacy chain; CVS Caremark, a pharmacy benefits manager; and Aetna, a health insurance provider.

In early May, Argus revised its price target on CVS Health Corporation (NYSE:CVS) to $80 from $100, while maintaining a Buy rating. The adjustment comes on the heels of CVS Health’s first-quarter 2024 results, which missed market expectations and led the company to lower its guidance. The new 2024 earnings per share guidance is set at “at least $7.00,” down from the “at least $8.30” projected in February and the “at least $8.50” anticipated at its Investor Day in December.

The company saw higher-than-expected utilization of Medicare Advantage plans offered through its Health Care Benefits segment. As a result, CVS now expects its 2024 adjusted operating income to be at least $14.75 billion, down from the $16.9 billion estimate it provided in February and the initial December forecast of $17.24 billion.

Additionally, on May 23, CVS Health Corporation (NYSE: CVS) saw its stock drop 3% after an unconfirmed report that the company was seeking a private equity (PE) partnership to expand its Oak Street Health platform. According to the report, CVS Health Corporation (NYSE: CVS) may be seeking a partnership similar to Humana’s with Welsh Carson, in which CVS would initially take a minority stake in the new clinics with an option to buy once they are established. However, analysts and RBC Capital Markets estimate that the Oak Street clinics will break even by year three or four and reach $6 million to $7 million in clinic-level profits by year six, protecting CVS from start-up losses during the clinics’ early years.

Ariel Global Fund said the following about CVS Health Corporation (NYSE: CVS) in its Q1 2024 investor letter:

“We bought an American healthcare company, CVS Health Company (NYSE: CVS), following recent concerns about potential new laws affecting pharmacy benefit managers (PBMs) – middlemen that negotiate drug prices between insurers and pharmacies – and pricing issues for its Medicare Advantage plans, a type of health insurance for seniors. The shares presented an attractive entry point after the company lowered its 2024 outlook. While investor apprehension about the new laws appears to have eased, Medicare Advantage plan usage is also stabilizing. Our purchase of CVS reflects our efforts to capitalize on temporary setbacks and lock in positions in companies poised to rebound.

CVS global ranks 8th on our list of the best health insurance stocks to buy. You can visit Top 10 Health Insurance Stocks to Buy to see other health insurance stocks that are on hedge funds’ radar. While we recognize CVS’s potential as an investment, our conviction lies in the belief that AI stocks have more promise to deliver higher returns, and in a shorter time frame. If you’re looking for an AI stock that has more promise than CVS but is trading at less than 5x earnings, check out our report on the the cheapest AI stock.

Read more : Analyst Sees New $25 Billion ‘Opportunity’ for NVIDIA And Jim Cramer Recommends These 10 Stocks in June.

Disclosure: None. This article was originally published on Insider Monkey.