5 Most Undervalued Healthcare Stocks To Buy According To Hedge Funds

In this article, we discuss the 5 most undervalued healthcare stocks to buy according to hedge funds. To read the detailed analysis of the healthcare industry, go directly to the 14 Most Undervalued Healthcare Stocks To Buy According To Hedge Funds.

5. Pfizer Inc. (NYSE:PFE)

TTM PE Ratio as of October 26: 8.17

Number of Hedge Fund Holders: 73

Pfizer Inc. (NYSE:PFE) is an American multinational pharmaceutical and biotechnology company that provides its products globally. The company was founded in 1849 and is headquartered in New York.

On October 4, Pfizer Inc. (NYSE:PFE) declared a $0.41 dividend payable by December 4 to the shareholders of record on November 10. The company has been increasing its dividend for the past 12 years and as of September 16, the company has a dividend yield of 4.93%.

In the second quarter of 2023, 73 hedge funds had a stake worth nearly $1.52 billion in Pfizer Inc. (NYSE:PFE).

Diamond Hill Capital made the following comment about Pfizer Inc. (NYSE:PFE) in its Q2 2023 investor letter:

“Our bottom contributors in Q2 included health insurance company Humana, biopharmaceutical company Pfizer Inc. (NYSE:PFE) and global entertainment company Disney. Pharmaceutical giant Pfizer has been dealing with a decline in sales due to lower COVID vaccination levels. Additionally, in 2023, management is increasing spend as the company invests in new product launches. That said, we remain positive about the long-term company fundamentals.”

4. Tenet Healthcare Corporation (NYSE:THC)

TTM PE Ratio as of October 26: 11.67

Number of Hedge Fund Holders: 74

Tenet Healthcare Corporation (NYSE:THC) is an American healthcare services company with 648 facilities across the US. 

In the second quarter, 74 hedge funds went long on Tenet Healthcare Corporation (NYSE:THC), up from 66 in the previous quarter. Along with the hedge funds, Wall Street analysts also seem to be looking at the company quite favorably. According to Tipranks, in the last three months, 12 out of 13 analysts maintain a Buy rating on the company stock with an average price target of $94.92.

In 2022, Tenet Healthcare Corporation (NYSE:THC) generated a revenue of $19.17 billion and a net profit of $411 million. For 2023, the company expects revenue to be between $20.10 billion and $20.50 billion and net profit to be between $447 million and $582 million.

Greenlight Capital made the following comment about Tenet Healthcare Corporation (NYSE:THC) in its second quarter 2023 investor letter:

“Tenet Healthcare Corporation (NYSE:THC), which returned 37% on the back of first quarter results that exceeded expectations and the company upgraded its annual outlook. After a rough patch last year due to COVID-related volume disruptions and elevated labor. costs, THC now appears back on track and executing well on its ambulatory surgery center growth strategy.”

3. The Cigna Group (NYSE:CI)

TTM PE Ratio as of October 26: 13.8

Number of Hedge Fund Holders: 74

The Cigna Group (NYSE:CI) is a Connecticut-based managed healthcare and insurance company. In the second quarter, Glenview Capital was the biggest stakeholder of the company with over 2 million shares worth $579.59 million. In the quarter, 74 hedge funds had a stake in The Cigna Group (NYSE:CI) worth $4.065 billion, bringing it to the 3rd spot on our list of most undervalued healthcare stocks according to hedge funds.

In the last three months, 6 out of 10 Wall Street analysts that have covered The Cigna Group (NYSE:CI) keep a Buy or Overweight rating on the company stock. The average analyst price target of $342 shows a 10.26% upside to the company’s stock price at the time of market close on October 19.

ClearBridge Investments mentioned The Cigna Group (NYSE:CI) in its investor letter for the first quarter of 2023. The firm said:

“At the same time, we exited health insurance company The Cigna Group (NYSE:CI), whose strong outperformance over the last year has resulted in shares trading at a significant premium relative to competitor CVS Health. Additionally, we view CVS Health’s underperformance as driven by temporary issues and believe it has a good likelihood of succeeding in its improvement initiatives following upgrades to the management team and its acquisition of Oak Street Health. As a result, we elected to swap our position in Cigna into CVS Health to capitalize on the valuation gap while maintaining similar exposure within the sector.”

2. Elevance Health, Inc. (NYSE:ELV)

TTM PE Ratio as of October 26: 17.5

Number of Hedge Fund Holders: 82

Elevance Health, Inc. (NYSE:ELV) is an American health insurance provider. It was founded in 2004 and is headquartered in Indiana. In Q2, First Eagle Investment Management owned 1.8 million of the company shares worth $802 million and was the most prominent stakeholder in Elevance Health, Inc. (NYSE:ELV).

In the third quarter, Elevance Health, Inc. (NYSE:ELV) exceeded its EPS estimates by $0.53 after posting an EPS of $8.99. However, the company lagged behind its revenue forecasts by $220 million and generated a revenue of $42.5 billion. For FY 2023, Elevance Health, Inc. (NYSE:ELV) expects GAAP net income per share to be greater than $26.40 and adjusted net income to be greater than $33 per share.

Along with reporting its earnings, Elevance Health, Inc. (NYSE:ELV) also declared a quarterly dividend of $1.48 per share on October 18. The dividend will be payable by December 21 to the shareholders of record on December 5.

ClearBridge Large Cap Value Strategy made the following comment about Elevance Health, Inc. (NYSE:ELV) in its Q3 2023 investor letter:

“Our health care positioning also fared well. We continue to maintain an overweight position to managed care companies via long-term holdings in UnitedHealth and Elevance Health, Inc. (NYSE:ELV), as we believe the short cycle nature of their insurance franchises allows them to reprice their book of business in a relatively short time frame, even if health care costs come in higher than previously anticipated.”

1. Johnson & Johnson (NYSE:JNJ)

TTM PE Ratio as of October 26: 11.25

Number of Hedge Fund Holders: 88

Johnson & Johnson (NYSE:JNJ) is a New Jersey-based pharmaceutical and medical technologies company. In its third quarter, the company posted a non-GAAP EPS of $2.66, outperforming the estimates by 14 cents. Johnson & Johnson (NYSE:JNJ)’s revenue also beat the market expectations by around $300 million and was nearly up 7% YoY to $21.35 billion.

Johnson & Johnson (NYSE:JNJ) is a fairly safe stock for people looking for passive income as the company has been increasing its dividend for the past 62 years. Despite having a high dividend yield of 3.13% compared to the healthcare sector’s average yield of 1.58%, the company has a payout ratio of merely 44%. Johnson & Johnson (NYSE:JNJ) declared its latest quarterly dividend on October 19, payable by December 5 to the shareholders of record on November 21.

According to our database, Johnson & Johnson (NYSE:JNJ) was owned by 88 hedge funds in the second quarter of 2023 and the company takes the top spot on our list of most undervalued healthcare stocks according to hedgefunds.

ClearBridge Investments made the following comment about Johnson & Johnson (NYSE:JNJ) in its Q3 2023 investor letter:

“The health care space provided some opportunities in the quarter, as we increased our exposure to medical device company Becton, Dickinson as well as large cap pharmaceutical company Johnson & Johnson (NYSE:JNJ). Johnson & Johnson recently spun out its consumer health care business, becoming a more focused yet broadly diversified pharmaceutical and medtech company.”

You can also look at the 13 Best Solar Energy Stocks To Invest In Heading Into 2024 and the Top Investors’ Stock Portfolio: 10 Small-Cap Stocks To Buy.

Insider Monkey focuses on uncovering the best investment ideas of hedge funds and investors. Please subscribe to our daily free newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below.