“Load Up,” says Jim Cramer of these 2 “Strong Buy” healthcare stocks

Against a backdrop of rising inflation, a slowing economy and continued rate hikes, CNBC’s Jim Cramer says it’s more important than ever to look at the past year and see what worked. In short, which stocks have managed to overcome bear conditions.

Within the components of the S&P 500, energy and utilities have been segments that have outperformed the broader market, and generally health care as well.

But healthcare stocks, of course, are a varied bunch, ranging from big pharma to hospital operators to medical device manufacturers to small biotechs that haven’t yet turned in sales. However, at this point, says the Mad Money host, it’s clear what the market wants from all the stocks on offer.

“Wall Street likes profitable companies with consistent results, nice dividends and fairly valued stocks,” he said. And the healthcare sector has a few; “boring, consistent operators with cheap supplies” – these were the winners of 2022. And names like that will continue to do so, according to Cramer.

With this in mind, let’s take a look at two big, reliable names. Cramer thinks investors should start now. We used the TipRanks database to see if Street’s analysts agree with these picks. As it turns out, each stock has received enough bullish calls over the past three months to give it a “Strong Buy” consensus rating.

Humana Inc. (HURRING)

If you’re looking for big, profitable healthcare giants, look no further. Humana, Cramer’s top choice, ranked 41st on the Fortune 500 list last year and is currently the fourth largest health insurer in the US.

It also helps in the current climate that the majority of Humana’s revenue is generated from government-sponsored programs, which provide the company with a steady and reliable stream of income that few can match. And in the difficult current climate, that has been a real boon, as clearly shown in the latest earnings report.

Third-quarter revenue grew 10.16% year-over-year to $22.80 billion, driven by increases in Medicare Advantage membership and premiums. The bottom-line performance in particular was impressive; adjective Earnings per share rose 42% compared to the same period last year to $6.88, well above the $6.28 analysts expected. Humana also announced an accelerated $1 billion share repurchase program, expected to be completed in the fourth quarter.

Cramer calls HUM stock a “great turnaround story,” and he’s not alone in his optimistic outlook. Morgan Stanley analyst Michael Ha also sees the company in a strong position heading into 2023.

“We believe that Humana’s investments in 2023 have led to an unprecedented improvement in benefit wealth that we have not seen in the past with a traditional MA plan (with at least a 5% market share… Looking ahead, we do not see any swing factors material enough to throw Humana off track with respect to 2023G EPS and believe that 2023 member growth marks the start of an increasingly powerful multi-year earnings growth story,” Ha opined.

To that end, Ha rates HUM stock as Overweight (i.e. Buy), supported by a $620 price target. How does this translate to investors? There is an increase of ~26% from current levels. (To view Ha’s track record, click here)

Overall, The Street is confident in Humana’s continued success; one analyst prefers to sit this one out, but all 14 other recent ratings are positive, naturally giving the stock a Strong Buy consensus rating. At $622.73, the average target represents an annual return of ~23%. (See Humana stock forecast on TipRanks)

UnitedHealth Group (ONH)

Hardly any are bigger or more reliable than the following Cramer-approved healthcare stock, which he calls “best-of-breed” for a reason.

UnitedHealth is one of the world’s largest revenue generators with a market cap of $489 billion. Offering healthcare products and insurance services, activities are divided into two distinct segments; UnitedHealthcare, which offers health insurance, and Optum, a data and technology services provider.

As a leading player in a growing global health insurance industry, it’s no surprise that the stock has outperformed the S&P 500 in nine of the past 10 years, including 2022.

In the most recently reported quarter, for Q3, revenue grew 12% year-over-year to $80.9 billion, with both Optum and UnitedHealthcare posting double-digit growth. adjective Earnings per share of $5.79 were up 28% from the same period a year ago, while also beating Street’s $5.43 forecast. The company also raised its full-year 2022 net profit outlook.

On the dividend side, the current quarterly payout of $1.65 yields a modest 1.26%, but the dividend payout ratio will only be around 30% this year. This gives the company enough money for possible future expansion projects and to pay off its debts. It could also enable the company to increase its dividend in the coming years.

This stock has caught the attention of five-star analyst George Hill of Deutsche Bank, who writes, “UNH has a long track record of under-promising and over-delivering… We continue to see the company as the high-quality defensive name in the world. the area of ​​large-cap healthcare services, given UNH’s increasing diversification into complementary businesses and the continued erosion of regulatory risk, which is reflected in the premium we have placed in our target multiple.”

All told, Hill rates UNH shares a buy, while his $615 price target suggests shares will rise 17% over the next year. (To view Hill’s track record, click here)

In general, other analysts also like what they see. 11 Buys and 3 Holds add up to a Strong Buy consensus rating. Based on the average price target of $602.64, the upside potential is around 15%. (See UnitedHealth stock forecast on TipRanks)

To find great ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a recently launched tool that brings together all of TipRanks’ stock insights.

Disclaimer: The opinions expressed in this article are solely those of the recommended analyst. The content is for informational purposes only. It is very important to do your own analysis before making an investment.

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