We recently compiled a list of the 10 Most Profitable Value Stocks To Invest In. In this article, we are going to take a look at where Centene Corporation (NYSE:CNC) stands against the other most profitable value stocks to invest in.
Rotating Back to Value Sectors is the Better Option
Value investing is essentially focused on looking at stocks trading at a discount to their intrinsic value. Such stocks happen to be more mature, less volatile, and have strong fundamentals. 2024 has been significant for defensive and value stocks, especially considering that growth stocks have been trading at high valuations all year round. Analysts expect the Magnificent Seven to shed their valuation significantly and investors continue to remain cautious amid a turbulent market environment.
On October 22, Brian Mulberry, Zacks Investment Management client portfolio manager, joined Wealth! on Yahoo Finance to discuss his market thesis and share why he prefers value stocks over growth stocks under the current macroeconomic backdrop. The S&P 500, in terms of the broader market, is currently trading at 22 times its forward earnings. Speaking of the magnificent seven, their valuations are getting a bit “top-heavy” and have been consistently trading between the mid to high 30s, adds Mulberry.
READ ALSO 10 Stocks with Consistent Growth to Buy and 8 Most Undervalued Value Stocks To Buy According To Analysts.
On the flip side, looking at utilities’ earnings growth and forward P/E, these companies are trading at a FWD P/E of only 9 or 10. Additionally, within these sectors, multiple better-performing individual stocks are expected to post sustainable or “durable earnings growth.”
Mulberry suggests that investors can do much better at current valuation levels if they are rotating back to some traditional sectors and value stocks. He adds that the big banks also expect to report strong earnings and will continue to do so as the interest rates go down even further in 2025.
Value stocks not only have stronger fundamentals, but they also have legacy businesses with sustainable business models. With the current backdrop of uncertainty, many analysts and strategists alike believe that low-risk and value businesses are the best bets for investors. That said, let’s take a look at the 10 most profitable value stocks to invest in.
Our Methodology
To come up with the 10 most profitable value stocks to invest in we used the Finviz stock screener to identify stocks in value-oriented sectors like consumer staples, financials, energy, healthcare, and more, with forward PE ratios of less than 15, positive 10-year revenue growth rates, and positive trailing 12-month net income. We then examined the hedge fund sentiment of each stock and picked the most popular ones. Our list is in ascending order of the number of hedge fund holders as of Q2 2024 primarily and 10-year revenue growth rates, forward P/E, and TTM net income secondarily.
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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A nurse talking on the phone with a client while assisting them in filling out paperwork for a medical insurance policy, demonstrating the company’s dedication to customer service.
Centene Corporation (NYSE:CNC)
Number of Hedge Fund Holders: 48
Forward P/E as of October 23, 2024: 8.95
10 Year Revenue Growth Rate: 27.5%
Trailing 12 Month (TTM) Net Income (June 30): $2.82 Billion
Centene Corporation (NYSE:CNC) is a managed care company that is based in Missouri, United States. The company provides high-quality healthcare to families and individuals. The company has 28.5 million managed care members, amounting to 1 in 15 individuals across the nation. Its products and services include Medicaid, medicare, and health insurance.
In the second quarter of 2024, Centene Corporation (NYSE:CNC) logged $39.84 billion in revenue, up by nearly 5.9%. The company attributes its revenue growth to its diversified portfolio, which helped the company stay on track. In addition to that, the company is working to improve its offerings and deliver long-term profitability through operational efficacy.
From recognitions to partnerships, the second quarter of 2024 has been quite a feat for Centene Corporation (NYSE:CNC). To align with its goal of expansion and to maintain its growth trajectory, on October 2, Ambetter Health, its health insurance business, shared plans to expand to 60 new counties in the United States. In 2024, the segment stood as one of the biggest health insurance businesses, providing insurance to over 4.4 million members.
Overall, Centene Corporation (NYSE:CNC) is one of the best value stocks to invest in, explaining why 48 hedge funds were bullish on the stock at the close of Q2 2024, according to Insider Monkey’s database. The stock is also cheap, trading at 9 times forward earnings, a discount of 58% to the sector median. Additionally, analysts polled by Yahoo Finance expect the stock to grow its earnings by slightly over 2% this year.
Harris Associates’ Oakmark Select Fund stated the following regarding Centene Corporation (NYSE:CNC) in its Q2 2024 investor letter:
“Centene Corporation (NYSE:CNC) is one of the largest health insurers in the U.S. The company specializes in three major government-sponsored programs: Medicaid, Marketplace and Medicare Advantage, each of which benefits from long-term secular tailwinds. In Medicaid, states are steadily outsourcing their programs to companies like Centene to reduce costs and improve care quality. Managed Medicaid penetration has increased throughout the past decade and we expect further gains over time. In Marketplace, growth is driven by the trend toward more individuals buying health insurance. Centene holds the #1 market share in both of these programs and is well positioned to capitalize on their continued growth. Finally, we believe management is successfully turning around Centene’s Medicare business and expect the division to generate positive earnings over time. After adjusting for losses stemming from Centene’s Medicare business, we were able to purchase shares at a single-digit P/E multiple, which we think is too cheap for a leading, secularly growing Medicaid company and an improving Medicare business.”
Overall CNC ranks 6th among the 10 most profitable value stocks to invest in. While we acknowledge the potential of CNC as an investment, our conviction lies in the belief that 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 CNC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.