For Immediate Release
Chicago, IL – August 2, 2022 – Today, Zacks Investment Ideas feature highlights Humana Inc. HUM and Centene Corp. CNC.
Stick With These Health Care Leaders in the Second Half of 2022
It’s certainly been a year for the history books, as concerns over heightened inflation, slower earnings growth, and a potential recession have weighed heavily on risk assets. While this market has been difficult to navigate for even the most seasoned investor, there are steps we can take to mitigate the volatility and benefit our portfolio as we move further into the second half of the year.
Having a plan in place that takes into account multiple outcomes can give us the confidence to tackle this dynamic market. If there’s one thing we know for sure, it’s that stocks won’t shoot up in a straight line over the next few months. It appears stocks found support at an important technical level back in June, but it remains to be seen if that will mark the low for the year. We are in the midst of the third quarter of a mid-term year, which historically has been quite weak.
Knowing that volatility will likely rear its ugly head once again over the next few months, we want to target stocks that have weathered this year’s bear market extremely well. Only stocks that are in the most powerful uptrends are trading near new highs during uncertain times like the present. So how do we go about selecting stocks for our portfolio? We let the market guide us in our selection process, and we employ the various Zacks Ranking Systems to help us identify stocks with the best profit potential.
Using a top-down approach, the Zacks Medical Sector is currently ranked in the top 25% out of all Zacks Ranked Sectors. This sector contains companies that serve the health care space and provide medical and dental products, pharmaceuticals, insurance services, biomedical and genetic engineering, and drug prescription services.
Drilling further down, the Zacks Medical – HMOs industry is the leading industry group within this sector. The Medical – HMOs industry is ranked in the top 17% out of approximately 250 industry groups. Digging a bit deeper, this group has widely outperformed the major indices this year with a +8.11% return. Quantitative research studies have shown that approximately half of a stock’s future price appreciation is due to its industry grouping.
By investing in stocks within leading industry groups, we can provide a constant ‘tailwind’ to our investing success. Let’s take a look at two companies within this top sector and industry combination.
Humana is a health benefits and well-being company in the United States. HUM provides medical and supplemental benefits to individuals through Health Maintenance Organization (HMO), Private Fee-For-Service (PFFS), and Preferred Provider Organization (PPO) plans. The company also has contracts with various states to provide Medicaid and long-term support services.
Humana has built a considerable membership base, with over 17 million members under its medical plans and over 7 million members in its specialty product category. In total for 2022, revenues are projected to increase 11.79% to $92.86 billion. Earnings are expected to climb 20.01% to $24.77 per share. The long-term trends illustrated below are what the bulls like to see.
HUM has strung together an impressive track record in terms of earnings beats, having exceeded estimates in each quarter for the past five years running. The health provider most recently announced Q2 EPS last week of $8.67/share, a 13.04% surprise over the $7.67/share consensus estimate. HUM has delivered a trailing four-quarter average earnings surprise of 9.09%.
The stock is up better than 3% this year while the market hovers in bear market territory, and is currently hovering near new all-time highs – a big sign of strength.
Centene operates as a multi-national healthcare enterprise that provides programs and services to under-insured and uninsured individuals in the United States. The company offers health coverage through government subsidized programs including Medicaid, the State children’s health insurance program, and long-term support services.
On the heels of an uptick in Medicaid memberships, CNC sales are expected to leap 14.1% in 2022 to $143.75 billion. Earnings should also grow at a healthy clip, with estimates calling for 10.49% growth ($5.69/share) relative to last year. CNC also reported Q2 earnings last week, posting EPS of $1.77/share, a 2.31% beat over consensus estimates.
CNC is undervalued (16.35 forward P/E) relative to its industry group (18.84 forward P/E). The stock is up nearly 13% this year and is also breaking out to an all-time high.
These two market leaders are well-established companies and have weathered the year’s volatility extremely well. Each of them boasts strong fundamentals, including the backing of a leading industry group. Make sure to keep an eye on HUM and CNC as we head into the second half of the year.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
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