In this article, we discuss 11 best mid-cap healthcare stocks to buy now. If you want to see more stocks in this selection, check out 5 Best Mid-Cap Healthcare Stocks To Buy Now.
The healthcare industry outlook is currently uncertain due to a combination of factors such as economic troubles, a shortage of healthcare workers, and the ongoing COVID-19 pandemic. It has become apparent that inflation is not temporary and that the economic situation has significantly worsened.
McKinsey has updated and expanded its projections and now estimates that the healthcare profits will have a compound annual growth rate (CAGR) of 4%, increasing from $654 billion in 2021 to $790 billion in 2026. This is lower than their previous estimate of 6% growth between 2021 and 2025. The industry is expected to face challenging conditions in 2023, primarily due to high inflation rates and labor shortages, but McKinsey anticipates that improvement efforts will help the industry overcome these challenges in 2024 and beyond. Certain segments such as Medicare Advantage within payers, care settings like ambulatory surgery centers within providers, software and platforms (e.g., patient engagement and clinical decision support) within HST, and specialty pharmacy within pharmacy services can expect higher growth. However, the outlook for some segments, including general acute care and post-acute care within providers and Medicaid within payers, has deteriorated according to the firm.
There are several new trends shaping the healthcare industry globally. Although the COVID pandemic promoted the latest methods to conduct remote healthcare checkups which enhance patient care and minimize costs for health providers, the sustainability of the conventional healthcare system has been brought into question. Virtual healthcare has the potential to personalize, quicken, and augment the ability to effectively deliver patient care. As per Deloitte, with more than one billion global population without access to medical care and nearly a billion people surviving without modern medicine, virtual healthcare offers a huge market opportunity to improve lives, while allowing businesses to profit. This will also make up for the shortage of healthcare workers and provide better outcomes for patients.
The US healthcare industry is enormous, with healthcare spending contributing to nearly 18.3% to the US GDP in 2021. According to Verified Market Research, the global healthcare market will be worth $665.37 billion by 2028. US national healthcare expenditure came in at $4.3 trillion in 2021, and it is forecasted to reach $6.2 trillion by 2028, as per the Centers for Medicare and Medicaid Services.
The global healthcare sector will continue to expand as the population has exceeded 8 billion recently. Some of the best healthcare stocks to watch include Johnson & Johnson (NYSE:JNJ), Merck & Co., Inc. (NYSE:MRK), and UnitedHealth Group Incorporated (NYSE:UNH). However, in this article, we discuss the best mid-cap healthcare stocks to buy.
Our Methodology
We used stock screeners to select mid-cap healthcare stocks, which are companies with market caps ranging from $2 billion to $10 billion as of April 25. Then, we scanned Insider Monkey’s database of 943 hedge funds and picked the top 11 mid-cap companies that provide services in the healthcare sector with the highest number of hedge fund investors. These are the best mid-cap healthcare stocks to buy according to hedge funds.
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Best Mid-Cap Healthcare Stocks To Buy Now
11. Organon & Co. (NYSE:OGN)
Number of Hedge Fund Holders: 37
Organon & Co. (NYSE:OGN) develops and provides healthcare solutions that consist of prescription treatments and medical equipment specifically designed for women’s health.
On March 16, analyst Elliot Wilbur from Raymond James began coverage of Organon & Co. (NYSE:OGN) and gave it an Outperform rating with a price target of $33. Wilbur sees the recent decline in the company’s stock price, which dropped by over 20% after its Q4 2022 and 2023 outlook, as an opportunity to invest in a company that has a strong leadership position within the $40.0 billion women’s health category and is expected to have long-term growth potential. The analyst believes that Organon & Co. (NYSE:OGN) will climb up the value chain within the biosimilars industry, and its growth pillars will allow the company to generate low-to-mid single digit revenue growth over the next ten years, offsetting any modest erosion from Organon’s Established Brands portfolio.
According to Insider Monkey’s fourth quarter database, 37 hedge funds were bullish on Organon & Co. (NYSE:OGN), compared to 38 funds in the earlier quarter. Steven Boyd’s Armistice Capital is the largest stakeholder of the company, with 2.40 million shares worth $67 million.
Like Johnson & Johnson (NYSE:JNJ), Merck & Co., Inc. (NYSE:MRK), and UnitedHealth Group Incorporated (NYSE:UNH), elite investors are piling into Organon & Co. (NYSE:OGN) for exposure to the healthcare sector.
Miller Value Partners made the following comment about Organon & Co. (NYSE:OGN) in its Q3 2022 investor letter:
“Organon & Co. (NYSE:OGN) was the top detractor for the quarter, falling 30.0%2. Organon reported 2Q22 revenue of $1.59 billion, -0.6% Y/Y, ahead of consensus of $1.54 billion, and Adjusted EPS of $1.25, -27.3% Y/Y, in-line with analyst expectations. Adjusted EBITDA for the quarter came in at $512 million (32.3% margin), compared to 2Q21 Adjusted EBITDA of $627 million (39.3% margin). Management revised FY22 guidance for revenue of $6.1-6.3 billion, compared to previous guidance for revenue of $6.1-6.4 billion, to reflect persisting foreign exchange (FX) headwinds, and Adjusted EBITDA margin of 32-34%, compared to prior guidance for a margin of 34-36%, which incorporates ~$110 million of in-process research and development (IPR&D) and milestone expenses from business development. Management’s guidance implies FY22 Adjusted EBITDA of $2.05B, at the respective midpoints, or an Enterprise Value (EV)/EBITDA multiple of ~7.0x.”
10. DaVita Inc. (NYSE:DVA)
Number of Hedge Fund Holders: 34
DaVita Inc. (NYSE:DVA) delivers dialysis treatments to individuals in the United States who have chronic kidney failure. The company runs kidney dialysis facilities and offers associated laboratory services in outpatient dialysis centers. It is one of the best healthcare stocks to buy. The company reported Q4 non-GAAP earnings per share of $0.59 and a revenue of $2.92 billion, while the operating income came in at $256 million for the three months ended December 31, 2022.
On February 23, Gary Taylor, an analyst at Cowen, increased the firm’s price target on DaVita Inc. (NYSE:DVA) from $76 to $90 and maintained an Outperform rating on the stock. Taylor stated that labor costs during the fourth quarter did not worsen significantly in comparison to the previous quarter, as the company had predicted in October. The analyst also pointed out that DaVita Inc. (NYSE:DVA) raised the lower end of its guidance.
According to Insider Monkey’s fourth quarter database, 34 hedge funds were long DaVita Inc. (NYSE:DVA), compared to 30 funds in the prior quarter. Warren Buffett’s Berkshire Hathaway is the largest stakeholder of the company, with 36 million shares worth $2.7 billion.
Moon Capital made the following comment about DaVita Inc. (NYSE:DVA) in its Q4 2022 investor letter:
“During the fourth quarter, we purchased shares in DaVita Inc. (NYSE:DVA), a dialysis center operator. For those unfamiliar, kidney dialysis involves the critical removal of toxins, fluids and salts from the blood by artificial means. Roughly 500,000 patients receive kidney dialysis in the U.S., which requires a 3.5-hour treatment three times a week. The only alternatives to the treatments are a kidney transplant or potential fatality. Given the critical nature of its services, demand has little correlation with the overall economy, resulting in a highly recession resistant business.
The U.S. dialysis industry is highly concentrated, with two companies (DaVita and its competitor Fresenius) controlling a combined 80% of the $25 billion market. The dominance of this duopoly provides massive scale advantages, making it incredibly difficult for new entrants to gain profitable market share.
In the past, DaVita’s valuation has been penalized (we view unfairly) because the company generates a significant portion of its operating income from a small percentage of its patients. Of DaVita’s 200,000 patients, approximately 90% qualify for Medicare (or Medicaid), with the remaining 10% covered by a commercial insurance provider. While commercial insurers pay an average of $1,000 per treatment, the federal government’s pay rate for Medicare and Medicaid is only $275 – which is actually less than what it costs DVA to provide the treatment…”(Click here to read the full text)
9. Karuna Therapeutics, Inc. (NASDAQ:KRTX)
Number of Hedge Fund Holders: 34
Karuna Therapeutics, Inc. (NASDAQ:KRTX) is a clinical-stage biopharmaceutical company that focuses on developing and providing innovative drugs for individuals with neurological and psychiatric disorders. The company’s primary product, KarXT, is an oral muscarinic receptor modulator that is intended for the treatment of acute psychosis in schizophrenia patients. It is one of the best healthcare stocks to invest in.
On March 22, Karuna Therapeutics, Inc. (NASDAQ:KRTX) announced the pricing of an underwritten public offering of 2,479,391 shares of its common stock at $161.33 per share. The expected gross proceeds from the offering are approximately $400 million. The underwriters have the option to purchase up to 371,908 additional shares of common stock within 30 days. The offering closed on March 24, 2023.
H.C. Wainwright analyst Raghuram Selvaraju maintained a Buy rating on Karuna Therapeutics, Inc. (NASDAQ:KRTX) but decreased the firm’s price target on the shares from $320 to $300 on March 28. The analyst anticipates that Karuna Therapeutics, Inc. (NASDAQ:KRTX) will apply for approval of KarXT around mid-2023, with the potential for approval in the latter half of 2024. The analyst cited equity dilution as the reason for the drop in the target price.
According to Insider Monkey’s fourth quarter database, 34 hedge funds were bullish on Karuna Therapeutics, Inc. (NASDAQ:KRTX), compared to 43 funds in the earlier quarter. Andreas Halvorsen’s Viking Global is the biggest stakeholder of the company, with 1.18 million shares worth $232.60 million.
Here is what Miller Value Partners Opportunity Trust Fund has to say about Karuna Therapeutics, Inc. (NASDAQ:KRTX) in its Q2 2022 investor letter:
“Karuna Therapeutics Inc. (NASDAQ:KRTX) had a lot of volatility over the quarter but ended up largely flat. We’ve done well with the position since initiation. The company is still clinical stage but has a largely de-risked asset, KarXT, focused on schizophrenia, a treatment area that has not had a new innovative treatment in decades. The company has shown strong Phase II data with Phase III results expected within weeks and an NDA (new drug application) submission expected in 2023. Furthermore, the company is developing KarXT in Alzheimer’s disease psychosis, providing the potential for further upside, a patient population where the mechanism of action has historically demonstrated both cognitive and behavioral improvements. We think the large opportunity in the schizophrenia space alone justifies a price more than double where it is currently trading.”
8. Roivant Sciences Ltd. (NASDAQ:ROIV)
Number of Hedge Fund Holders: 35
Roivant Sciences Ltd. (NASDAQ:ROIV) is a healthcare company that centers its efforts on utilizing technology to enhance drug development. The company achieves this goal by creating additional biotechnology and healthcare technology firms through its subsidiary companies. On March 28, Boston-based drug discovery company Covant Therapeutics, which operates under Roivant Sciences Ltd. (NASDAQ:ROIV), revealed that it has entered into a global licensing agreement with German pharmaceutical company Boehringer Ingelheim to co-develop cancer immunotherapies.
On January 5, Citi analyst Neena Bitritto-Garg raised the firm’s price target on Roivant Sciences Ltd. (NASDAQ:ROIV) to $14 from $11 and kept a Buy rating on the shares. The analyst explained that the TUSCANY-2 data for RVT-3101 confirms its potential position as a preferred biologic treatment for ulcerative colitis due to its high effectiveness and safety. The analyst believes that the value of RVT-3101 is still not fully reflected in the company’s shares.
According to Insider Monkey’s fourth quarter database, 35 hedge funds were bullish on Roivant Sciences Ltd. (NASDAQ:ROIV), compared to 28 funds in the prior quarter. Daniel Gold’s QVT Financial is the largest stakeholder of the company, with 122.5 million shares worth $979 million.
7. Inspire Medical Systems, Inc. (NYSE:INSP)
Number of Hedge Fund Holders: 35
Inspire Medical Systems, Inc. (NYSE:INSP) is a company that specializes in medical technology and is dedicated to creating and marketing minimally invasive remedies for individuals with obstructive sleep apnea both domestically and globally. On February 7, Inspire Medical Systems, Inc. (NYSE:INSP) reported a Q4 GAAP EPS of $0.10 and a revenue of $137.9 million, outperforming Wall Street estimates by $0.68 and $0.15 million, respectively. The company expects that the total revenue for 2023 will fall within the bracket of $560 million to $570 million, in contrast to the consensus estimate of $545.71 million. This would indicate an increase in revenue of around 37% to 40% in comparison to the previous year.
On April 13, Anthony Petrone, an analyst at Mizuho, started coverage of Inspire Medical Systems, Inc. (NYSE:INSP) with a Buy rating along with a price target of $300. In a research note to investors, the analyst stated that the company is the only one with an approved hypoglossal nerve stimulation device for obstructive sleep apnea. He also mentioned that the positive results from a sleep survey indicate that Inspire Medical Systems, Inc. (NYSE:INSP) has the potential for same-store implant growth that may exceed expectations, and there is currently no competition from other hypoglossal nerve stimulation devices.
According to Insider Monkey’s fourth quarter database, 35 hedge funds were bullish on Inspire Medical Systems, Inc. (NYSE:INSP), compared to 37 funds in the prior quarter. Ken Griffin’s Citadel Investment Group is the biggest stakeholder of the company, with 632,330 shares worth $159.2 million.
Wasatch Small Cap Growth Strategy made the following comment about Inspire Medical Systems, Inc. (NYSE:INSP) in its Q4 2022 investor letter:
“Inspire Medical Systems, Inc. (NYSE:INSP) develops minimally invasive solutions for patients with obstructive sleep apnea. The company has experienced strong demand for its products, which serve a previously unmet medical need. Inspire’s management team has executed well, growing revenues at a rapid clip since the company’s initial public offering in 2018. Most recently, Inspire reported year-over-year quarterly revenue growth of 77%, surpassing Wall Street estimates. Citing increased utilization at existing sites and the addition of new implanting centers, management raised its full-year revenue forecast and maintained margin guidance in the range of 83% to 85%.”
6. Apellis Pharmaceuticals, Inc. (NASDAQ:APLS)
Number of Hedge Fund Holders: 38
Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) is a commercial-stage biopharmaceutical company and its main area of focus is the exploration, advancement, and marketing of therapeutic compounds that work by inhibiting the complement system. These compounds are designed to treat diseases that are related to inflammation and autoimmunity. Apellis Pharmaceuticals is currently in discussions with advisors to explore its options, following expressions of interest from large pharmaceutical companies. A Wells Fargo analyst has suggested that the company could be worth around $90 to $100 per share in a potential takeover, as per a research note dated April 3.
On March 9, Citi reiterated a Buy rating on Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) but lowered the firm’s price target on the shares to $88 from $91. The analyst mentioned that the reason for the target decrease was due to dilution caused by the recent financing activities.
According to Insider Monkey’s fourth quarter database, 38 hedge funds were bullish on Apellis Pharmaceuticals, Inc. (NASDAQ:APLS), compared to 41 funds in the prior quarter. Kurt Von Emster’s VenBio Select Advisor is the largest stakeholder of the company, with 10.6 million shares worth $594.4 million.
In addition to Johnson & Johnson (NYSE:JNJ), Merck & Co., Inc. (NYSE:MRK), and UnitedHealth Group Incorporated (NYSE:UNH), Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) is one of the best healthcare stocks to invest in.
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Disclosure: None. 11 Best Mid-Cap Healthcare Stocks To Buy Now is originally published on Insider Monkey.