The services and products of the healthcare sector are always in demand by consumers regardless of economic cycles. According to Statista, the revenue of the healthcare segment is expected to grow at a CAGR of 11% to reach $92.01 billion by 2027. Additionally, the sector is fueled by rapid technological advancements that increase its quality and efficiency.
Although the industry is facing a labor shortage, healthcare companies are beginning to invest in virtual care, automation, and AI to scale up and meet the demand. On top of it, according to McKinsey, the healthcare services and technology sector is expected to grow 10% by 2026.
Moreover, despite the Fed’s policies determined to slow down inflation, the latest January data signaling persisting inflation in the economy could see 0.5% interest rate hikes in the near term. Amid concerns of the economy heading into a recession, recession-proof healthcare stocks could offer safety to investors’ portfolios.
Given these factors, investors could benefit from fundamentally strong healthcare stocks UnitedHealth Group Incorporated (UNH), CVS Health Corporation (CVS), and HCA Healthcare, Inc. (HCA).
UnitedHealth Group Incorporated (UNH)
UNH operates as a diversified healthcare company in the United States. It operates through four segments: UnitedHealthcare; Optum Health; Optum Insight; and Optum Rx.
In terms of forward GAAP P/E, UNH’s 21.06x is 20.8% lower than the 26.60x industry average. Likewise, its 1.41x forward EV/Sales is 65.1% lower than the 4.03x industry average.
On January 10, 2023, Owensboro Health and UNH subsidiary Optum announced a partnership to enhance patient care and experience while meeting the community’s evolving healthcare needs.
UNH’s chief strategy and growth officer, Dan Schumacher, said, "Optum is honored to be working with Owensboro Health to reinvent traditional health care models and systems, improve efficiency and address complex social and economic factors. Together we can advance superior quality care and enhance the experience of patients, physicians, nurses and other providers."
UNH’s total revenues increased 12.3% year-over-year to $82.79 billion for the fourth quarter that ended December 31, 2022. The company’s adjusted net earnings attributable to UNH common shareholders increased 18.1% year-over-year to $5.06 billion. In addition, its adjusted EPS came in at $5.34, representing a 19.2% increase from the prior-year quarter.
UNH’s EPS and revenue for the quarter ending March 31, 2023, are expected to increase 10.7% and 12% year-over-year to $6.07 and $89.76 billion, respectively. The company has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 1.2% to close the last trading session at $491.31.
UNH’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the A-rated Medical - Health Insurance industry, it is ranked #2 out of 11 stocks. The company has a B grade for Growth, Stability, Sentiment, and Quality.
Click here to see the additional ratings of UNH for Value and Momentum.
CVS Health Corporation (CVS)
CVS provides health services in the United States. It operates through three segments: Health Care Benefits; Pharmacy Services; and Retail/LTC.
In terms of forward non-GAAP P/E, CVS’ 9.99x is 50.1% lower than the 20.02x industry average. Likewise, its 9.70x forward EV/EBIT is 44.1% lower than the 17.34x industry average.
On February 8, 2023, CVS and Oak Street Health (OSH) entered into a definitive agreement under which CVS would acquire OSH. The acquisition is expected to benefit patients' long-term health by reducing care costs and improving outcomes, particularly in underserved communities.
CVS’ President and CEO, Karen S. Lynch, said, "Enhancing our value-based offerings is core to our strategy as we continue to redefine how people access and experience care that is more affordable, convenient and connected."
For the fiscal fourth quarter that ended December 31, 2022, CVS’ total revenues increased 9.5% year-over-year to $83.85 billion. Its operating income increased 62.3% year-over-year to $3.62 billion. The company’s net income attributable to CVS increased 76.3% year-over-year to $2.30 billion. Moreover, its adjusted EPS came in at $1.99, representing a marginal increase year-over-year.
Analysts expect CVS’ EPS and revenue for the fiscal year 2022 to increase 1.9% and 1.4% year-over-year to $8.86 and $327.00 billion, respectively. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained marginally to close the last trading session at $87.62.
It is no surprise that CVS has an overall rating of B, which translates to Buy in our proprietary rating system. It is ranked first out of four stocks in the B-rated Medical - Drug Stores industry. It has a B grade for Value and Stability.
We have also given CVS grades for Growth, Momentum, Sentiment, and Quality. Get all CVS ratings here.
HCA Healthcare, Inc. (HCA)
HCA provides health care services in the United States. The company operates general and acute care hospitals offering medical and surgical services and outpatient and physical therapy.
In terms of forward non-GAAP P/E, HCA’s 15.24x is 23.9% lower than the 20.02x industry average. Likewise, its 1.16x forward Price/Sales is 75% lower than the 4.65x industry average.
For the fiscal fourth quarter that ended December 31, 2022, HCA’s revenues increased 2.9% year-over-year to $15.50 billion. Net income attributable to HCA increased 14.7% from the prior-year quarter to $2.08 billion. Additionally, its adjusted EBITDA increased marginally year-over-year to $3.18 billion, while its EPS came in at $7.28, representing a 26.6% increase from the year-ago period.
HCA’s EPS for the quarter ending June 30, 2023, is expected to increase 1.3% year-over-year to $4.27. Its revenue for the quarter ending March 31, 2023, is expected to increase 2.2% year-over-year to $15.28 billion. Over the past nine months, the stock has gained 25.1% to close the last trading session at $256.09.
HCA’s positive outlook is reflected in its POWR Ratings. The company has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It is ranked first out of 12 stocks in the Medical - Hospitals industry. In addition, it has a B grade for Value, Stability, and Quality.
Click here to see the additional ratings of HCA for Growth, Momentum, and Sentiment.
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UNH shares were trading at $493.55 per share on Wednesday morning, up $2.24 (+0.46%). Year-to-date, UNH has declined -6.91%, versus a 4.49% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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