Over the years, the healthcare sector has consistently played a vital role in society, driven by the consistent demand for healthcare services and advancements. As we see increasing numbers of aging populations and the continuous rise of chronic diseases, the call for advanced pharmaceuticals, medical technologies, and progressive treatments is anticipated to escalate.
Considering the promising prospects of the medical industry, it could be wise to add quality medical stocks UnitedHealth Group Incorporated (UNH), CVS Health Corporation (CVS), Select Medical Holdings Corporation (SEM), and Zynex, Inc. (ZYXI) to one’s portfolio.
The soaring elderly population, a higher incidence of chronic Non-Communicable Diseases (NCDs), and growing health awareness offer significant growth opportunities for the healthcare sector as it strives to keep up with the mounting demand for medical services.
The onset of winter in the U.S., along with a probable rise in flu, COVID-19, and Respiratory Syncytial Virus (RSV) cases, underscores the urgency for amplified medical responses. For instance, as of the week ending January 6, weekly COVID hospitalizations escalated to 35,801 – marking the ninth consecutive week of rises. The U.S. hospital market is projected to hit a revenue of $1.48 trillion by 2024.
Simultaneously, the ongoing global digital revolution is setting the stage for numerous opportunities within the digital health realm. Technological breakthroughs in telemedicine, automated surgery, wearable health tech devices, and health informatics are poised to dramatically reshape the industry.
The digital health market is projected to expand at a CAGR of 23.3% to reach $1.97 trillion by 2030.
Staying at the forefront of technological innovation continues to be a priority for the healthcare industry. With projections showing the global medical devices market reaching $996.93 billion by 2032 at a CAGR of 5.8%, it's clear that the industry is leveraging these technological leaps for its expansion.
Furthermore, amid the annual uptick in medical expenses, health insurance continues to be a critical buffer against fiscal distress. The global health insurance market, expected to reach $4.37 trillion by 2030, growing at a 7.3% CAGR, is primed for steady expansion due to heightened cognizance about the benefits of health coverage and an anticipated rise in the senior populace.
Given the industry tailwinds, it's time to examine the fundamentals of the stocks to buy in the medical industry.
UnitedHealth Group Incorporated (UNH)
UNH is a diversified healthcare company in the U.S., operating through four segments: UnitedHealthcare; OptumHealth; OptumInsight; and OptumRx.
From January 1, 2024, UNH has placed eight preferred insulin products on tier one of standard commercial formularies, limiting out-of-pocket spending to $35 or less.
On December 12, UNH paid a quarterly cash dividend of $1.88 per share of UNH common stock. UNH has paid dividends for 21 consecutive years, indicating its shareholder payback abilities.
Its annualized dividend rate of $7.52 per share translates to a dividend yield of 1.43% on the current share price. Its four-year average yield is 1.33%. UNH’s dividend payments have grown at CAGRs of 14.7% and 16.1% over the past three and five years, respectively.
During 2023, the company returned $14.8 billion to shareholders through dividends and share repurchases.
UNH’s trailing-12-month asset turnover ratio of 1.43x is 262.5% higher than the industry average of 0.98x, while its trailing-12-month EBITDA margin of 9.78% is 108% higher than the industry average of 4.70%.
UNH’s total revenues for the fiscal fourth quarter that ended December 31, 2023, increased 14.1% year-over-year to $94.42 billion. Its earnings from operations rose 11.6% year-over-year to $7.69 billion.
For the same quarter, adjusted net earnings attributable to UNH common shareholders and adjusted earnings per share stood at $5.76 billion and $6.16, up 13.8% and 15.4% from the prior-year quarter, respectively. As of December 31, 2023, its total current assets stood at $78.44 billion, compared to $69.07 billion as of December 31, 2022.
As of December 31, 2023, UNH business served 52.75 million people, a 2% year-over-year growth. This encouraging trend was primarily propelled by membership growth of the company's domestic commercial and Medicare Advantage businesses.
Street expects UNH’s revenue and EPS in the fiscal first quarter ending March 2024 to increase 8.3% and 8.6% year-over-year to $99.57 billion and $6.80, respectively. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 6.4% over the past year to close the last trading session at $516.34. Over the past six months, it gained 6.7%.
UNH’s POWR Ratings reflect its robust prospects. The stock has an overall B rating, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has a B grade for Stability and Quality. It is ranked #6 out of 12 stocks in the B-rated Medical – Health Insurance industry.
For UNH’s additional ratings (Growth, Value, Momentum, and Sentiment), click here.
CVS Health Corporation (CVS)
CVS provides diverse health services and offers health insurance, pharmacy benefits, and retail products, including prescription drugs and walk-in medical clinics through MinuteClinic. The company operates across three segments: Health Care Benefits; Pharmacy Services; and Retail/LTC.
On December 15, CVS announced a quarterly dividend of $0.665 per share on the common stock of the corporation, payable to the holders on February 1, 2024. Moreover, it boasts a 26-year record for consecutive years of dividend payments.
The company pays $2.66 annually as dividends, which translates to a yield of 3.45% on the prevailing price level. Its four-year average dividend yield is 2.74%. The company has raised its dividend payouts at a CAGR of 6.6% and 3.9% over the past three and five years.
On December 6, CVS awarded $2 million in Hometown Fund grants to organizations in Connecticut, Massachusetts, and Rhode Island, focusing on improving access to equitable health care and addressing social determinants of health.
CVS’ trailing-12-month EBIT margin of 4.05% is 747.1% higher than the industry average of 0.48%. Its trailing-12-month levered FCF margin of 3.46% is 981.3% higher than the 0.32% industry average.
In the fiscal third quarter that ended September 30, 2023, CVS reported total revenues of $89.76 billion, up 10.6% from the prior-year quarter. The company’s adjusted operating income and income per common share attributable to CVS grew 2.5% and 1.8% year-over-year to $4.46 billion and $2.21, respectively.
As of September 30, 2023, CVS’ total current assets amounted to $70.14 billion, compared to $65.63 billion as of December 31, 2022.
For the full year of 2023, the company projects its adjusted EPS between $8.50 and $8.70. Additionally, the cash flow from operations is expected to be between $12.50 billion and $13.50 billion.
Street expects CVS’ revenue to grow 3.6% year-over-year to $88.34 billion for the fiscal first quarter ending March 2024. Its EPS for the same quarter is expected to be $2.02. The company surpassed the revenue and EPS estimates in each of the trailing four quarters.
CVS’ shares have gained 2.9% over the past six months and 1.7% over the past three months to close the last trading session at $73.88.
CVS’ POWR Ratings reflect its sound outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
CVS has a B grade for Value, Stability, and Sentiment. Within the B-rated Medical – Drug Stores industry, it is ranked first among three stocks.
In addition to the POWR Ratings stated above, one can access CVS’ additional Growth, Momentum, and Quality ratings here.
Select Medical Holdings Corporation (SEM)
SEM operates critical illness recovery hospitals, rehabilitation hospitals, outpatient rehabilitation clinics, and occupational health centers in the United States. It operates through four segments: The Critical Illness Recovery Hospital, The Rehabilitation Hospital, The Outpatient Rehabilitation, and The Concentra.
As of September 30, 2023, SEM had operations in 46 states and the District of Columbia. It operated 107 critical illness recovery hospitals in 28 states, 33 rehabilitation hospitals in 13 states, 1,946 outpatient rehabilitation clinics in 39 states and the District of Columbia, 539 occupational health centers in 41 states, and 145 onsite clinics at employer worksites.
On November 28, SEM paid its shareholders a quarterly dividend of $0.125 per share. The company pays $0.50 annually as dividends, which translates to a yield of 1.93% on the prevailing price level. Its four-year average dividend yield is 1.09%.
SEM’s trailing-12-month EBIT margin of 7.92% is significantly higher than the industry average of 0.48%. Its trailing-12-month levered FCF margin of 2.09% is 553% higher than the 0.32% industry average.
SEM’s net revenue increased 6.2% year-over-year to $1.67 billion for the fiscal third quarter that ended September 30, 2023. Its income from operations grew 42.1% from the prior year’s quarter to $129.96 million.
Its adjusted net income attributable to common shares and adjusted net income per share stood at $56.48 million and $0.46, up 115.8% and 119% year-over-year, respectively. In addition, the company’s adjusted EBITDA grew 26.6% from the year-ago quarter to $193.84 million.
For the fiscal year of 2023, the company expects its revenue to be between $6.55 billion and $6.7 billion, Adjusted EBITDA between $795 million and $825.0 million, and fully diluted earnings per share between $1.77 and $1.94.
Analysts expect SEM’s revenue and EPS for the fiscal first quarter (ending March 2024) to increase 4.4% and 7.5% year-over-year to $1.74 billion and $0.60, respectively. Moreover, the company surpassed the consensus revenue and EPS estimates in three of the trailing four quarters.
The stock has gained 11.2% over the past month and 9.5% over the past three months to close the last trading session at $26.32.
SEM’s positive prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has a B grade for Growth, Value, and Stability. SEM is ranked #6 of 11 stocks within the Medical - Hospitals industry.
To access additional POWR Ratings of SEM for Momentum, Sentiment, and Quality, click here.
Zynex, Inc. (ZYXI)
ZYXI designs, manufactures, and markets medical devices to treat chronic and acute pain; and activate and exercise muscles for rehabilitative purposes with electrical stimulation. It provides NexWave, NeuroMove, InWave, and E-Wave. The company also supplies privately labeled products, including electrodes and batteries for use in electrotherapy products.
On November 13, ZYXI submitted a 510(k) application to the U.S. Food and Drug Administration (FDA) for the M-Wave Neuromuscular Electrical Stimulation (NMES) device. The M-Wave is expected to replace the E-Wave, which has been fundamental in Neuromuscular Electrical Stimulation (NMES) treatments.
“We are excited to introduce the M-Wave, a device that showcases our ongoing commitment to improving the lives of patients dealing with neuromuscular conditions,” said Thomas Sandgaard, CEO at Zynex Medical.
On November 1, ZYXI’s board of directors approved a program to repurchase up to $20 million. The program commenced on November 1, 2023, and is scheduled to terminate before November 1, 2024, or when the $20 million limit is reached.
ZYXI’s trailing-12-month EBIT and levered FCF margins of 10% and 8.13% are significantly higher than the industry averages of 0.48% and 0.32%, respectively. Its trailing-12-month asset turnover ratio of 1.39x is 252.9% higher than the 0.39x industry average.
ZYXI’s net revenue increased 20.2% year-over-year to $49.92 million for the fiscal third quarter that ended September 30, 2023. Its revenue from Devices and Supplies grew 48.5% and 9.6% year-over-year to $16.86 million and $33.06 million, respectively. Its gross profit grew 22.1% from the prior-year quarter to $40.40 million.
In addition, the company’s cash and cash equivalents amounted to $42.52 million as of September 30, 2023, compared to $20.14 million as of December 31, 2022. Moreover, as of September 2023, its total current assets came at $102.92 million, compared to $69.56 million as of December 31, 2023.
Analysts expect ZYXI’s revenue and EPS for the second quarter (ending June 2024) to increase 21.5% and 14.8% year-over-year to $54.62 million and $0.10, respectively. Moreover, the company surpassed the consensus EPS estimates in all four trailing quarters and the consensus revenue estimates in three of the trailing four quarters.
The stock has gained 10.9% over the past six months and 23.5% over the past three months to close the last trading session at $10.34.
It’s no surprise that ZYXI has an overall rating of B, which translates to a Buy in our proprietary POWR rating system.
The stock has an A grade for Quality and a B for Value. ZYXI is ranked #4 of 8 stocks within the A-rated Medical – Consumer Goods industry.
Click here for ZYXI's additional POWR Ratings for Growth, Momentum, Stability, and Sentiment.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
UNH shares . Year-to-date, UNH has declined -1.92%, versus a 0.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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