Hedge funds are now bullish on this health insurance stock

We recently compiled a list of the The 10 Best Health Insurance Stocks to Buy. In this article, we’ll take a look at where Centene Corporation (NYSE:CNC) stands compared to the other health insurance stocks.

Health insurance remains a contentious issue in the United States, where many people struggle to afford basic medical care. Although it is widely considered essential, it remains inaccessible to many Americans. Despite the availability of public and private health insurance options, individuals are often faced with the decision of being eligible for government assistance or having to afford private insurance, leaving many uninsured. In this regard, the Kaiser Family Foundation reports that 64.2% of uninsured, non-elderly adults (ages 18 to 64) cite high costs as a primary reason for foregoing health insurance.

Conversely, private insurance, provided primarily by employers, remains the most common form of insurance in the United States. About 60% of Americans are insured this way – about three times as many as those with Medicaid. The number of Americans with private health insurance began gradually increasing in 2013 after declining sharply in the late 1990s and early 2000s. From 2016 to 2023, an average of around 61% of the population was insured. This increase has boosted private insurers’ revenues in recent years.

Starting in 2023, the U.S. health insurance exchanges, created in 2014 as part of the Affordable Care Act (ACA), will celebrate their tenth year of operation. Over the past decade, each market has experienced significant fluctuations in insurer participation, pricing and plan options. Given the recent surge in exchange filings, commercial insurers that previously avoided these marketplaces may need to reevaluate as exchanges have become an important part of health insurance. However, this unprecedented growth could be temporary. The return of the subsidy cliff – if increased subsidies are not renewed in 2025 – could erase some of the progress. The 2024 election results could also impact the future of ACA coverage and subsidies, putting possible changes under scrutiny.

Global consulting firm McKinsey reports that health insurers could reap significant benefits by fully integrating AI and automation into their business processes. The company estimates that insurers could save $150 million to $300 million in administrative costs and $380 million to $970 million in medical costs for every $10 billion in revenue. Additionally, these technologies could generate $260 billion to $1.24 billion in additional revenue.

The global health insurance industry is poised for significant growth, with forecasts from Straits Research predicting a compound annual growth rate (CAGR) of 9.8% from 2024 to 2032. By 2032, the market is expected to reach $176.04 billion.

Our methodology

To create our list of the best health insurance stocks to buy, we first compiled an initial list of 20 health insurance stocks by reviewing ETFs, stock screeners, and online rankings. We then used Insider Monkey’s Q2 2024 database to identify the 10 stocks most commonly held by hedge funds. The list is sorted in ascending order of hedge fund sentiment for each stock.

At Insider Monkey, we obsess over the stocks hedge funds invest in. The reason is simple: Our research shows that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, outperforming its benchmark by 150 percentage points (see more details here).

A doctor holds a clipboard in a hospital ward and discusses the patient’s treatment plan with nurses.

Centene Corporation (NYSE:CNC)

Number of hedge fund owners: 48

Centene Corporation (NYSE:CNC), headquartered in St. Louis, Missouri, is a publicly traded managed care company that acts as an intermediary for both government-sponsored and privately insured health care programs, with a focus on the Medicaid market.

Wells Fargo recently updated its outlook for Centene Corporation (NYSE:CNC), raising its price target to $93 from $81 while maintaining its “Overweight” rating, signaling confidence in the stock’s investment potential. The revised price target is based on Wells Fargo’s analysis of two possible earnings scenarios for CNC. In the first scenario, the company applied a 13x multiple to Centene’s forecast 2026 earnings per share, assuming the continuation of enhanced stock market subsidies. In the second scenario, if the extended subsidies expire, Wells Fargo expects a per share headwind of $0.70, which would be partially offset by statutory capital of $2.00 per share.

Centene Corporation (NYSE:CNC) reported strong second-quarter results, reporting adjusted diluted earnings per share of $2.42, up 15% year-over-year. This solid performance was primarily due to effective market implementation, despite challenges in Medicaid due to new regulations. Looking ahead, the health insurer raised its full-year premium and service expectations to between $141 billion and $143 billion. Additionally, the company is targeting revenue between $14 billion and $16 billion in 2025, focusing on opportunities in the Duals, Heidi and Fidei programs.

As of the second quarter of 2024, 48 hedge funds tracked by Insider Monkey held shares of Centene Corporation (NYSE:CNC). Among top investors, AQR Capital Management owned a stake worth over $296.4 million.

Total CNC takes 7th place on our list of the best health insurance stocks to buy. While we recognize CNC’s potential as an investment, we believe certain severely undervalued AI stocks offer greater prospects for higher returns in a shorter period of time. If you’re looking for an AI stock that’s even more promising than CNC and trading at less than 5 times earnings, check out our report on it cheapest AI stock.

READ MORE: $30 Trillion Opportunity: The 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer say NVIDIA has “become a wasteland.”

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