We recently compiled a list of the 12 Cheap Healthcare Stocks to Buy Heading into 2025. In this article, we are going to take a look at where Molina Healthcare, Inc. (NYSE:MOH) stands against the other cheap healthcare stocks.
The Resilience and Challenges of Global Healthcare Spending
Investing in healthcare equities is typically seen as protective during recessionary times. This is because, even in hard financial times, consumers usually do not reduce their usage of prescription drugs or other necessary healthcare services. National healthcare spending is expected to reach an estimated $4.8 trillion in 2023 and increase at a 5.6% annual pace between 2027 and 2032, according to the Centers for Medicare and Medicaid Services (CMS).
According to a World Health Organization report published in December 2023, worldwide healthcare spending reached a record high in 2021 at $9.8 trillion, or 10.3% of global GDP. Except in low-income countries, where government health spending declined as a result of their significant reliance on foreign aid, public health spending increased globally. While 11% of the world’s population lived in countries where yearly healthcare spending was less than $50 per person, high-income countries paid about $4,000 per capita in 2021. Additionally, low-income countries accounted for just 0.24% of global health spending, despite having 8% of the world’s population. The study claims that although public health spending rose dramatically during the peak of the COVID-19 epidemic, this increase is unlikely to last in the long term as countries now place a higher priority on economic problems such as high inflation, decreasing GDP, and mounting debt servicing. According to Dr. Bruce Aylward, WHO Assistant Director-General for Universal Health Coverage, Life Course:
“Sustained public financing on health is urgently needed to progress towards universal health coverage. It is especially critical at this time when the world is confronted by the climate crisis, conflicts, and other complex emergencies. People’s health and well-being need to be protected by resilient health systems that can also withstand these shocks.”
The impending collapse of the U.S. healthcare system, especially in terms of staff shortages and financial instability, is the most worrisome aspect of the healthcare sector. There is a serious manpower shortage in the healthcare sector. An additional 124,000 doctors are expected to be required by 2030, and by 2027, 800,000 registered nurses (RNs) are expected to retire. A startling 24% of staff registered nurses are currently leaving their jobs. In certain healthcare systems, this deficit has resulted in the shutdown of critical patient services like obstetrics, pediatrics, psychiatry, and intensive care units.
Nevertheless, the U.S. spends over twice as much on healthcare as the OECD average, despite these difficulties, and the average results are poorer. This discrepancy emphasizes how ineffective and unsustainable the current system is. Further taxing the revenue cycle and reducing the amount of money available for therapeutic treatments is the fact that 58% of hospital bad debt originates from insured patients. The future of the American healthcare system appears bleak when these elements are taken together. The industry faces a systemic collapse that could have serious repercussions for the economy and public health if substantial intervention and reform are not implemented.
Our Methodology
Our methodology involved selecting stocks with a market capitalization exceeding $10 billion and a price-to-earnings (P/E) ratio below 17. We then ranked these stocks based on their P/E ratios, as of December 22.
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 doctor in scrubs shaking hands with a patient, representing the healthcare services provided to individuals and families.
Molina Healthcare, Inc. (NYSE:MOH)
P/E Ratio: 15.03
Molina Healthcare, Inc. (NYSE:MOH) is a managed care company providing health insurance and services, primarily to low-income individuals and families. It operates through government-sponsored programs like Medicaid, Medicare, and the Health Insurance Marketplace, offering insurance plans, primary care clinics, and comprehensive healthcare solutions.
Molina Healthcare, Inc. (NYSE:MOH) reported premium revenue of almost $9.7 billion in Q3 2024, which is a 17% increase from the previous year. A Medical Care Ratio (MCR) ratio of 89.2%, which shows that almost 90 cents of every dollar earned was spent on medical care, overshadowed this growth. This is much more than anticipated and above their long-term objective range of 85-88%. Higher medical expenditures in the Medicaid and Medicare segments were the primary cause of the higher MCR; California faced particular difficulties as a result of a retroactive premium rate cut that had a detrimental effect on margins.
The profitability of Molina Healthcare, Inc. (NYSE:MOH) was under strain despite the rise in sales. Although it was in line with forecasts, the adjusted profits per share (EPS) of $6.01 revealed a worrying trend in cost control. Although it was within their desired range, the adjusted pre-tax margin of 4.5% illustrates a situation in which costs are increasing more quickly than revenue growth in important categories.
According to the Insider Monkey database, 37 hedge funds held shares in the company in Q3 2024, with Durable Capital Partners being the largest shareholder, owning $361.4 million worth of stakes.
Overall MOH ranks 9th on our list of the cheap healthcare stocks to buy heading into 2025. While we acknowledge the potential of MOH 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 timeframe. If you are looking for an AI stock that is more promising than MOH 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.