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2 Health Insurance Stocks to Buy in October and 1 to Avoid

The raging inflation is expected to increase healthcare expenditure significantly. This, along with heightened health awareness in this post-pandemic era, should drive the demand for health insurance. So, investing in fundamentally strong health insurance stocks, UnitedHealth Group (UNH) and Humana Inc. (HUM), could be wise. On the other hand, Clover Health Investments (CLOV) doesn’t look well-positioned to capitalize on the industry tailwinds. So, this stock could be best avoided now. Read more...

The COVID-19 pandemic brought the healthcare sector into the spotlight. In recent years, the demand for health insurance has increased worldwide due to the importance of protection against serious diseases.

The persistently high inflation could mean rising healthcare expenditures. Although many Americans have comprehensive health insurance coverage through their employers, many still remain uninsured or inadequately covered.

The under penetration of health insurance within the nation and rising healthcare expenditure could drive the demand for health insurance. The U.S. health insurance market is expected to grow at a CAGR of roughly 10.1% to $846.34 billion by 2027.

Considering the optimistic prospects of the health insurance industry, one could invest in fundamentally strong health insurance stocks UnitedHealth Group Incorporated (UNH) and Humana, Inc. (HUM). However, Clover Health Investments (CLOV) could be best avoided now due to its weak fundamentals.

Stocks to Buy:

UnitedHealth Group Incorporated (UNH)

UNH is a diversified healthcare company operating through four segments: UnitedHealthcare, Optum Health, Optum Insight, and Optum Rx. It offers consumer-oriented health benefit plans and services, software and information products, health care coverage, and well-being services. Additionally, UNH provides access to networks of care provider specialists, consumer engagement, and financial services.

On October 17, 2022, UNH announced a $5 million investment in The Multi-Assistance Center at Morgan’s Wonderland (The MAC). The investment will allow The MAC to offer an Employment Support Center and a Practice Without Pressure program as part of its integrated service approach to provide access to health care and stable employment, breaking two significant socioeconomic barriers for people with special needs.

For the fiscal third quarter ended September 30, 2022, UNH’s total revenues increased 11.8% year-over-year to $80.89 billion. The company’s adjusted net earnings attributable to UnitedHealth Group common shareholders improved by 27.2% year-over-year to $5.49 billion. In addition, its adjusted EPS came in at $5.79, representing an increase of 28% year-over-year.

Analysts expect UNH’s EPS and revenue for the quarter ending December 31, 2022, to increase 18.2% and 10.8% year-over-year to $5.30 and $81.74 billion, respectively. The company has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in each of the trailing four quarters.

Over the past year, the stock has gained 21.9% to close the last trading session at $521.88.

UNH’s POWR Ratings reflect this positive outlook. UNH has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.

Within the A-rated Medical - Health Insurance industry, it is ranked first among 11 stocks. The company has a B grade for Growth, Stability, Sentiment, and Quality.

Click here to see the other POWR ratings of UNH for Value and Momentum.

Humana, Inc. (HUM)

HUM operates as a health and well-being company through three segments: Retail, Group and Specialty, and Healthcare Services. The company provides medical and supplemental benefit plans. In addition, it offers commercial fully-insured medical and specialty health insurance benefits, administrative services, and military services.

On August 12, 2022, Humana Inc. announced its acquisition of the assets of Inclusa, Inc. Humana Medicaid’s President, John Barger, said, “The long-term care services delivered by Inclusa and their contracted providers under Wisconsin’s Family Care program provide important assistance for eligible individuals that value their member-centered care model. We look forward to combining Inclusa’s and Humana’s expertise and capabilities to grow the Inclusa business and help even more people get the long-term care they need.”

HUM’s adjusted total revenues increased 15.3% year-over-year to $23.72 billion in the second quarter ended June 30, 2022. The adjusted pre-tax income grew 26.7% year-over-year to $1.43 billion. Additionally, the company’s adjusted EPS increased 25.8% year-over-year to $8.67. Also, its adjusted EBITDA increased 25.2% year-over-year to $486 million.

HUM’s consensus EPS and revenue estimates for the quarter ended September 30, 2022, are expected to increase 29.8% and 10% year-over-year to $6.27 and $22.78 billion, respectively. In addition, HUM has a commendable earnings surprise history, beating the consensus EPS in each of the trailing four quarters.

Over the past nine months, the stock has gained 7.2% to close the last trading session at $498.79.

HUM’s strong fundamentals are reflected in its POWR ratings. HUM has an overall rating of B, which equates to a Buy in our proprietary rating system. It is ranked #6 in the same industry. It has a B grade for Value and Sentiment.

We have also given HUM grades for Growth, Momentum, Stability, and Quality. Get all the HUM ratings here.

Stock to Avoid:

Clover Health Investments (CLOV)

CLOV operates as a Medicare Advantage insurer in the United States. Through its Clover Assistant, a software platform, the company provides preferred provider organization and health maintenance organization health plans for Medicare-eligible consumers.

CLOV’s total liabilities increased 297.6% to $1.63 billion for the second quarter ended June 30, 2022, compared to $411.49 million for the fiscal year ended December 31, 2021. The company’s non-GAAP adjusted operating expenses grew 23.4% year-over-year to $75.40 million.

Analysts expect CLOV’s loss per share for the quarter ended September 2022 to widen 180.6% year-over-year to $0.22. Over the past year, the stock has declined 80% to close the last trading session at $1.58.

CLOV’s grim outlook is reflected in its POWR ratings. The company has an overall rating of D, which equates to a Sell. It is ranked last in the same industry. In addition, it has an F grade for Stability and a D for Sentiment.

To see the other ratings of CLOV for Growth, Value, Momentum, and Quality, click here.

UNH shares were unchanged in after-hours trading Tuesday. Year-to-date, UNH has gained 5.01%, versus a -20.96% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.


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