Against a backdrop of soaring inflation, a slowing economy and persistent rate hikes, assessing the playbook for the coming year, CNBC’s Jim Cramer says it’s more important than ever to look at the past year and see what worked. Basically, which stocks have managed to overcome the bear conditions.
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Within the components of the S&P 500, energy and utilities have been segments that have beaten the broader market, and generally speaking, so have those of the healthcare sector.
But healthcare stocks, of course, are a varied bunch, and run the gamut from Big Pharma to hospital operators to medical device makers to small biotechs yet to notch any sales. Right now, however, says the Mad Money host, of all the stocks on offer, it’s clear what the market wants.
“Wall Street likes profitable companies with consistent results, nice dividends and reasonably valued stocks,” he said. And the healthcare sector has some of those; “boring, consistent operators with cheap stocks” – these have been 2022’s winners. And such names are going to keep outperforming, according to Cramer.
With this in mind, let’s look at two big, dependable names Cramer thinks investors should be loading up on right now. We’ve used the TipRanks database to see whether the Street’s analysts agree with these picks. As it turns out, each stock has received enough bullish calls over the last three months to give it a “Strong Buy” consensus rating.
Humana Inc. (HUM)
If you are looking for big, profitable, healthcare giants, then look no further. Humana, the first Cramer pick, took the 41st spot last year on the Fortune 500 list and is currently the U.S.’s fourth biggest health insurance provider.
It also helps in the current climate that the bulk of Humana’s revenues are generated from government-sponsored programs, which provide the company with a regular and reliable income stream few can match. And in the difficult current climate that has been a real boon, as was clear to see in the latest earnings report.
Q3 revenue grew by 10.16% year-over-year to $22.80 billion, boosted by an uptick in Medicare Advantage members and premiums. The bottom-line performance was especially impressive; adj. EPS climbed by 42% compared to the same period last year, coming in at $6.88, far above the $6.28 expected by the analysts. Humana also announced an accelerated $1 billion share buyback program, which is set to conclude in Q4.
Cramer calls HUM stock a “great turnaround story,” and he’s not alone in his bullish outlook. Morgan Stanley analyst Michael Ha also sees the company in a strong position heading into 2023.
“We believe Humana’s investments into 2023 has led to an unprecedented improvement in benefit richness we have not historically seen from any traditional MA plan (w/ market share of at least 5%)… Looking forward, we do not see any swing factors material enough to knock Humana off course on 2023G EPS and believe 2023 membership growth marks the beginning of an increasingly powerful multi-year earnings growth story,” Ha opined.
To this end, Ha rates HUM shares an Overweight (i.e., Buy), backed by a $620 price target. How does this translate to investors? There’s upside of ~26% from current levels. (To watch Ha’s track record, click here)
Overall, the Street is confident in Humana’s ongoing success; one analyst prefers sitting this one out, but all 14 other recent reviews are positive, naturally providing the stock with a Strong Buy consensus rating. At $622.73, the average target represents one-year returns of ~23%. (See Humana stock forecast on TipRanks)
UnitedHealth Group (UNH)
Hardly any come bigger or more dependable than the next Cramer-endorsed healthcare stock, which not for nothing he calls “best-of-breed.”
UnitedHealth is one of the world’s biggest revenue generators with a market cap of $489 billion. Offering healthcare products and insurance services, its operations are divided into two distinct segments; UnitedHealthcare, which provides health insurance, and Optum, a provider of data and technology services.
As the leading player in a growing worldwide health insurance industry, it’s no surprise to learn the stock has been able to outperform the S&P 500 in nine out of the last 10 years, 2022 included.
In the most recently reported quarter, for Q3, revenue grew by 12% year-over-year to $80.9 billion, with both Optum and UnitedHealthcare displaying double-digit growth. Adj. EPS of $5.79 increased by 28% from the same period a year ago, while also beating the Street’s $5.43 forecast. The company also raised its full year 2022 net earnings outlook.
On the dividend front, the current quarterly $1.65 payout yields a modest 1.26%, but the dividend payout ratio will be roughly only 30% this year. This gives the company plenty of cash for potential future expansion projects and to settle its debt. It could also enable the company to hike the dividend over the next few years.
This stock has caught the attention of 5-star analyst George Hill, from Deutsche Bank, who writes, “UNH has a long track record of under-promising and over-delivering… We continue to see the company as the high-quality defensive name in the large cap healthcare services space given UNH’s increasing diversification into complementary businesses and the continued erosion of regulatory risks, which is reflected in the premium we granted in our target multiple.”
All told, Hill rates UNH stock as a Buy while his $615 price target suggests shares will climb 17% higher over the coming year. (To watch Hill’s track record, click here)
In general, other analysts also like what they’re seeing. 11 Buys and 3 Holds add up to a Strong Buy consensus rating. Based on the $602.64 average price target, the upside potential comes in at ~15%. (See UnitedHealth stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
