We recently compiled a list of the Top 10 Health Insurance Stocks To Buy. In this article, we are going to take a look at where CVS Health Corporation (NYSE:CVS) stands against the other health insurance stocks.

The health insurance industry is constantly changing, driven by a movement towards consumer-driven healthcare, in which people actively control their own health and healthcare costs. In that sense, Fortune Business Insights projects that the global healthcare insurance market is estimated to be worth $2.14 trillion in 2024 and will grow from $2.32 trillion in 2025 to roughly $4.45 trillion by 2032, reflecting a 9.7% CAGR over the forecast period.

AI in Health Insurance

According to McKinsey, health insurers might benefit significantly from completely incorporating AI and automation into their business operations. The firm believes that for every $10 billion in revenue, insurers could save $150 million to $300 million in administrative costs and $380 million to $970 million in medical expenses. In addition, these technologies may create an additional $260 million to $1.24 billion in income.

That said, concerns regarding AI's expanding role in health insurance, particularly around claim denials, have escalated in recent months, especially in light of the death of UnitedHealthcare CEO Brian Thompson. These concerns had previously pushed the Biden administration to establish optional operational agreements with insurers, payers, and providers in 2023. In 2024, an executive order was issued to create criteria and safeguards for AI implementation. However, in January of this year, the Trump administration revoked Biden's AI mandate, proposing that a new action plan be developed by the middle of the year.

Commenting on the rising implementation of AI in health insurance, law firm Maynard Nexsen stated:

“The AI landscape continues to develop, and the regulations appear to be loosening — at least at the federal level. These changes have led to uncertainty among organizations using AI technology.”

Medicaid Concerns

Medicaid, the nation's largest health insurance program, which covers more than 70 million people, could be slashed under House Republican proposals. Lawmakers are proposing cutbacks of up to $2.3 trillion over the next decade to help fund border security and extend President Trump's 2017 tax cuts. As the government works to decrease federal debt while maintaining expenditure commitments, Medicaid remains a key priority. To further expand on the implications of such a move, it should be noted that the Affordable Care Act (ACA) has considerably expanded the program's scope and expense, making it the principal provider of comprehensive health and long-term care for one in every five Americans and accounting for approximately $1 out of every $5 spent on healthcare.

Furthermore, House Republicans just passed a budget by a slim margin, requiring the Energy and Commerce Committee, in charge of federal healthcare, to reduce $880 billion in expenditures. The reductions are designed to help support Trump's tax cuts, mass deportations, and defense spending.

Our Methodology

For our list of the best health insurance stocks to buy, we started with a list of stocks pulled from ETFs, stock screeners, and web rankings. We then utilized Insider Monkey's Q4 2024 database to discover the top ten stocks held by hedge funds. The list is organized in ascending order of hedge fund sentiment around each stock.

Why are we interested in the stocks that hedge funds pile into? 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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

A row of shelves in a retail pharmacy, demonstrating the variety of drugs and over-the-counter products.

CVS Health Corporation (NYSE:CVS)

Number of Hedge Fund Holders: 74

CVS Health Corporation (NYSE:CVS) is an American healthcare company that maintains a large network of retail pharmacies and clinics nationwide. Its main brands include CVS Pharmacy, a retail drugstore chain; CVS Caremark, a pharmacy benefits manager; and Aetna, a health insurance provider. Aetna provides a variety of health insurance alternatives, including commercial coverage plans, Affordable Care Act (ACA) plans, Medicaid plans, Medicare plans, and vision and dental policies.

Bernstein SocGen Group raised its price target for CVS Health (NYSE:CVS) stock to $71 from $52, while maintaining a Market Perform rating on the shares. The revision comes after CVS Health released fourth-quarter profits for 2024, which were above consensus forecasts. Bernstein feels that, while CVS Health's recent performance is solid, particularly with Aetna's profits playing a crucial role, the company is currently well valued. According to the firm's study, CVS Health is well-positioned to sustain its financial performance in the next years.

CVS Health posted better-than-expected fourth-quarter earnings for 2024, with adjusted EBIT of $2.73 billion, higher than the Street's expectation of $2.30 billion. The company's adjusted profits per share were also above forecasts, coming in at $1.19 vs the expected $0.91.

Ariel Global Fund stated the following regarding CVS Health Corporation (NYSE:CVS) in its Q4 2024 investor letter:

“Lastly, American healthcare company, CVS Health Corporation (NYSE:CVS) underperformed in the period. The company preannounced a third-quarter preliminary profit estimate materially below consensus expectations and pulled its 2024 guidance due to continued medical cost pressures. Investor concerns around the recently proposed Pharmacy Benefit Management (PBM) legislation further weighed on shares. Despite these challenges, management reiterated its focus on improving margins and enhancing its positioning in Medicare Advantage (MA). CVS believes the program can remain an attractive business for Aetna and CVS Health over time as it implements a multi-year repricing strategy across plan level benefits. Meanwhile, CVS continues to take actions to drive long-term success including the appointment of longtime company executive David Joyner as President and CEO as well as adding four new board members.

Overall CVS ranks 3rd on our list of the top health insurance stocks to buy. While we acknowledge the potential of CVS as an investment, our conviction lies in the belief that certain 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 CVS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.

 

Disclosure: None. This article is originally published at Insider Monkey.