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 CVS Health Corporation (NYSE:CVS) 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 row of shelves in a retail pharmacy demonstrating the variety of medications and over-the-counter products.

CVS Health Corporation (NYSE:CVS)

Number of hedge fund owners: 60

CVS Health Corporation (NYSE:CVS) is a U.S.-based healthcare company that operates a broad network of retail pharmacies and clinics across the country. Major brands include CVS Pharmacy, a retail pharmacy chain; CVS Caremark, a pharmacy benefits manager; and Aetna, a health insurer.

Earlier in August this year, TD Cowen maintained its Hold rating on CVS Health Corporation (NYSE:CVS) and maintained a price target of $59.00 following the company’s Q2 2024 performance. After CVS revised its full-year outlook, TD Cowen adjusted its 2024 earnings per share estimate to $6.53, matching management’s updated guidance of $6.40 to $6.65. For 2025, the company forecasts an 18% year-over-year increase and an increase in earnings per share to $7.62. The 2025 guidance assumes margin improvement of approximately 110 basis points in the Medicare Advantage segment, which is within the company’s target range of 100 to 200 basis points. This also accounts for a 5% decline in Medicare Advantage enrollment and $500 million in expected cost savings.

The company increased its Aetna Medical membership through CVS pharmacies to 9 million, an increase of 8%. Additionally, Caremark now includes 13.8 million Aetna members, representing 13% growth.

As of the end of the second quarter of 2024, 60 hedge funds tracked by Insider Monkey out of a database of 912 held positions in CVS Health Corporation (NYSE:CVS).

Ariel Global Fund announced the following on CVS Health Corporation (NYSE:CVS) in the second quarter of 2024 Investor letter:

Total CVS takes 6th place on our list of the best health insurance stocks to buy. While we recognize CVS’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 CVS 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.