The medical sector is expanding due to health awareness, an aging population, and technological advancements. Given the industry’s growth prospects, investors could consider buying fundamentally sound medical stocks HCA Healthcare, Inc. (HCA), Cardinal Health, Inc. (CAH) and Molina Healthcare, Inc. (MOH) for solid returns in 2024.

Before delving deeper into their fundamentals, let’s discuss what’s happening in the medical industry.

The healthcare industry is rapidly changing as a result of technological advances such as telemedicine and artificial intelligence, as well as an aging population and a high prevalence of chronic diseases necessitating innovative solutions. These advancements in technology have revolutionized the way healthcare is delivered, allowing for remote consultations and personalized treatment plans.

Moreover, AI investments in healthcare are improving patient outcomes, streamlining processes, and lowering costs by leveraging data-driven insights to enable accurate diagnoses, personalized treatment plans, and better patient care. The global AI in healthcare market is predicted to grow at a 36.4% CAGR until 2030.

According to Statista, the worldwide pharmaceuticals market is predicted to grow at a 6.2% CAGR to reach $1.47 trillion by 2028. In addition, investors’ interest in medical stocks is evident from Vanguard Health Care ETF (VHT) 7.5% returns over the past three months.

Considering these conducive trends, let’s examine the fundamentals of the three medical stock picks.

HCA Healthcare, Inc. (HCA)

HCA and its subsidiaries provide healthcare services in the United States. It operates general and acute care hospitals that offer medical and surgical services, including inpatient care, intensive care, cardiac care, diagnostic, and emergency services; and outpatient services, such as outpatient surgery, laboratory, radiology, respiratory therapy, cardiology, and physical therapy.

HCA’s trailing-12-month EBIT margin of 14.63% is significantly higher than the industry average of 0.81%. Its trailing-12-month levered FCF margin of 3.78% is significantly higher than the industry of 0.33%.

For the fiscal third quarter that ended September 30, 2023, HCA’s revenues increased 8.3% year-over-year to $16.21 billion. Its net income attributable to HCA was $1.08 billion, while its EPS was $3.91. Additionally, its adjusted EBITDA stood at $2.88 billion.

Analysts expect HCA’s revenue to increase 5.5% year-over-year to $67.67 billion for the year ending December 2024. Its EPS is expected to grow 7.4% year-over-year to $19.52 for the same period. The stock has gained 17.3% over the past three months to close the last trading session at $280.82.

HCA’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

HCA also has a B grade for Stability. It is ranked #3 out of 11 stocks in the Medical – Hospitals industry. Click here for the additional POWR Ratings for Growth, Value, Sentiment Momentum and Quality for HCA.

Cardinal Health, Inc. (CAH)

CAH operates as a healthcare services and products company in the U.S., Canada, Europe, Asia, and internationally. The company offers customized solutions for hospitals, healthcare systems, pharmacies, ambulatory surgery centers, clinical laboratories, physician offices, and patients in the home. It operates in two segments: Pharmaceutical and Medical.

CAH’s trailing-12-month levered FCF margin of 1.48% is 343.1% higher than the industry average of 0.33%. Its trailing-12-month asset turnover ratio of 4.83x is significantly higher than the industry average of 0.39x.

CAH’s revenues increased 10% year-over-year to $54.8 billion in the first quarter that ended September 30, 2023. Its non-GAAP operating earnings grew 35% from the year-ago value to $571 million. In addition, non-GAAP net earnings attributable to CAH and non-GAAP earnings per share rose 32% and 44% year-over-year to $433 million and $1.73, respectively.

The consensus revenue came in at $226.35 billion for the fiscal year ending June 2024 represents a 10.4% increase year-over-year. Its EPS is expected to grow 20.1% year-over-year to $6.95 for the same year. It surpassed EPS estimates in all four trailing quarters. Shares of CAH has gained 31.9% over the past nine months to close the last trading session at $106.38.

CAH’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.

CAH has an A grade for Growth and a B for Value. It ranked first among the 67 stocks in the Medical – Services industry. Click here to access additional CAH ratings (Stability, Sentiment, Momentum and Quality).

Molina Healthcare, Inc. (MOH)

MOH provides managed healthcare services to low-income families and individuals under the Medicaid and Medicare programs and through the state insurance marketplaces. It operates in four segments, Medicaid; Medicare; Marketplace; and Other.

MOH’s trailing-12-month EBIT margin of 4.85% is 497.5% higher than the industry average of 0.81%. Its trailing-12-month levered FCF margin of 5.23% is significantly higher than the industry of 0.33%.

For the fiscal third quarter ending September 30, 2023, MOH’s total revenue increased 7.8% year-over-year to $8.55 billion. Its adjusted net income increased 15.7% over the same period last year to $294 million.

Its operating income for the period increased 7.2% over the prior-year quarter to $359 million. In addition, its adjusted EPS came in at $5.05, representing an increase of 15.8% year-over-year.

Street expects MOH’s revenue to increase 15% year-over-year to $38.38 billion for the fiscal year ending December 2024. Its EPS is expected to increase 12.9% year-over-year to $23.55 for the same period. It surpassed EPS estimates in all four trailing quarters. Shares of MOH has gained 31.1% over the past nine months to close the last trading session at $385.04.

MOH has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has an A grade for Growth and Quality and a B for Stability and Value. It is ranked #2 out of 12 stocks in the B-rated Medical - Health Insurance industry.

Beyond what is stated above, we’ve also rated MOH for Sentiment and Momentum. Get all MOH ratings here.

What To Do Next?

Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:

10 Stocks to SELL NOW! >

HCA shares were trading at $279.95 per share on Wednesday afternoon, down $0.87 (-0.31%). Year-to-date, HCA has gained 3.42%, versus a -0.74% rise in the benchmark S&P 500 index during the same period.

Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.

More...