We recently published a list of the 12 Most Oversold Healthcare Stocks to Buy Now. In this article, we are going to take a look at where Novo Nordisk A/S (NYSE:NVO) stands against the other oversold healthcare stocks to buy now.
Are Healthcare Costs Rising in the US?
Healthcare costs and spending have been rising in the US. The Centers for Medicare & Medicaid Services reported that healthcare spending in the US reached $4.9 trillion in 2023, up 7.5% from 2022. The healthcare sector accounted for around 17.6% of the US economy in 2023, reflecting a 17.4% rise from 2022. The two primary drivers of this growth are the rise in private health insurance and Medicare.
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What Could Trump’s Tariffs Mean for the Healthcare Industry
Since more and more companies in the US are looking towards China for deals regarding the next promising molecule, whether in the obesity or cancer space, the impact of tariffs on this ongoing trend has become a subject of significant discussion in the healthcare industry. On February 7, Carlo Rizzuto, Versant Ventures managing director, appeared on CNBC’s ‘Fast Money’ to discuss the impact of tariffs on healthcare. Rizzuto believed that there are two ways in which tariffs could impact the industry. The first would be products innovated in China and brought over to the US or other markets. To understand how the tariffs would affect such trade processes, the industry would have to see how the tariffs are actually structured in the market.
Secondly and more tangibly, China is a massive center for contract research and manufacturing for the US healthcare industry. Therefore, anything that increases that cost is likely to make the market conditions more challenging. The healthcare industry is already under pressure in terms of investor sentiment, and an increase in cost is not going to help its functioning.
China and the US Healthcare Sector: What’s the Connection?
Talking about the immense role played by China in the pharma and healthcare space, Rizzuto said that a significant majority of healthcare companies are using a Chinese CRO or manufacturing partner in some way in the R&D process. It is thus a very significant part of how biotech or pharma companies operate in the country. This trend is widely prevalent, going from the smallest companies to the largest.
Simply speaking, it is not possible for healthcare companies to reshore all of the externalized R&D and manufacturing to the US, as the country does not have enough capacity to accommodate the transfer. It is thus very difficult to imagine how a reshoring of such magnitude could take place. The costs to undertake this feat can be calculated linearly with the amount of tariffs applied.
Delving deeper into the industry dynamics, Rizzuto termed the obesity space and, more broadly, the cardiometabolic domain as the single largest value-creation opportunity in the industry’s history. In a recently published article on 10 Best Drug Stocks to Buy Now, we discussed whether China is the next big thing in the pharmaceutical industry. Here is an excerpt from the article:
“Large American pharmaceutical companies are showing a distinct trend never seen before: they are increasingly looking for medicines in China. According to data from DealForma, as reported by CNBC, around 30% of Big Pharma deals with at least $50 million upfront in 2024 included Chinese companies. This was up from 20% the year before and almost 0% only five years prior. The surge in China deals is materializing when US policymakers and President Donald Trump are pursuing protectionist policies in technology, such as semiconductors and AI.
Various reasons are being attributed to this trend. Experts believe that Chinese companies are developing more effective molecules than ever before, that too in large quantities. They are in a position to begin testing these molecules on human subjects quicker and at a lower price than the US. Buyers have devised a business model allowing them to essentially import the medicines through licensing deals, according to CNBC. Biotech companies are further pushed into making these deals due to the drying up of venture funding in China.
Despite varying opinions among experts, there is an industry-wide consensus that this unique trend is here to stay. How this trend might affect the US biotech sector remains unclear at the moment. While some people believe it could potentially ruin American startups if large pharmaceutical companies stumble upon a promising Chinese drug at low price, others believe the competition would be fruitful for the industry. Either way, this trend is anticipated to metamorphose the landscape of the American biopharma sector”.
Our Methodology
We used stock screeners to compile a list of healthcare stocks that experienced significant declines over the past year. We then selected the 12 stocks with the highest analyst upside potential. We also added the number of hedge fund holders for these stocks, as of Q3 2024. We sourced the hedge fund sentiment data from Insider Monkey’s database. The list is sorted in ascending order of analyst upside potential. All data is as of February 18, 2025.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
An elderly couple receiving insulin from a pharmacist, representing healthcare company’s successful pharmaceutical products.
Novo Nordisk A/S (NYSE:NVO)
Year Perf: -33.70%
Analyst Upside: 49.25%
Number of Hedge Fund Holders: 61
Novo Nordisk A/S (NYSE:NVO) is a global healthcare company specializing in diabetes care. It develops, discovers, manufactures, and markets pharmaceutical products. Its operations are divided into two business segments: biopharmaceuticals and diabetes and obesity care. The latter segment covers GLP-1, insulin, and other protein-related products. Novo Nordisk A/S (NYSE:NVO) is one of the two major pharmaceutical companies competing in the GLP-1 weight loss market, with the other being Eli Lilly.
While both companies have approved weight loss medicines leading the market with billions in revenue, Novo Nordisk A/S (NYSE:NVO) is working on a new oral weight loss pill that may transform the market if approved. Novo Nordisk CEO Lars Fruergaard Jørgensen said the company plans to file for regulatory approval for its oral weight loss drug in the United States in the coming months. If the company gains approval, it may be able to launch the drug as early as next year, which is when Eli Lilly also plans the release of its weight loss drug.
Apart from potential optimism surrounding this oral weight loss drug, Novo Nordisk A/S (NYSE:NVO) is functioning on strong fundamentals. Fiscal 2024 was a strong year for the company, with sales climbing 25% to $40.6 billion. It also raised its total dividend per share by 21.3% to DKK 11.40, which includes an interim dividend of DKK 3.50 distributed in August. This is the 29th consecutive year of dividend growth at NVO. In 2025, Novo Nordisk A/S (NYSE:NVO) expects a free cash flow of around DKK 75 to 85 billion and sales growth of 16-24% at constant exchange rates.
Overall, NVO ranks 12th on our list of the most oversold healthcare stocks to buy now. While we acknowledge the potential of NVO as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than NVO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.