Four Dividend-Paying Health Care Investments to Buy for a Pandemic Recovery

Four dividend-paying health care investments to buy for a COVID-19 pandemic recovery include America’s biggest for-profit hospital chain, a large managed care organization (MCO) and two industry exchange-traded funds (ETFs).

The four dividend-paying health care investments to buy offer strong potential to profit from the ongoing economic reopening that will favor providers who should be lifted by improving trends as COVID-19 wanes and by rising utilization volumes compared to pandemic-plagued 2020. The financial performance of hospital chains should show gains starting in March 2021 amid cost controls and patients becoming increasingly comfortable seeking care for non-urgent conditions they may have delayed during the pandemic before the expanded rollout of COVID-19 vaccines.

Hospital stocks should outperform MCOs in 2021, particularly in the first half of 2021, with the top performer likely becoming Nashville, Tennessee-based HCA Healthcare (NYSE:HCA), the largest for-profit operator of health care facilities in America, according to BoA Global Research. Even though it is not always true that when hospitals win, MCOs lose, and vice versa, the next several months of 2021 likely will turn out that way in favor of the health care facilities, BoA concluded in a recent research note.

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Four Dividend-paying Health Care Investments to Buy Headlined by HCA Healthcare

For hospital chains such as HCA, first-quarter 2021 volumes may underwhelm as COVID volumes slow, core volumes climb modestly and the impact of severe storms in February is measured. March volumes are likely to be strong, especially for non-COVID care, according to BoA.

In addition, non-COVID volumes are likely to snap back faster the more virus cases winnow, so a possible first-quarter 2021 volume miss due to low COVID numbers would be a positive indicator for an industry rebound in the second quarter. Plus, strong cost controls mean that earnings before interest, taxes, depreciation and amortization (EBITDA) numbers are still likely to move up even if first-quarter volume is soft, BoA commented in a recent research note.

“HCA is the best in class name, with significant capital deployment upside,” BoA opined.

The investment firm placed a $215 price objective on 10.0x its 2021 estimates for the hospital chain’s EBITDA, above the high of its historic 6-9x multiple range, as HCA’s peers receive significant stimulus from the government. HCA, offering a current dividend yield of 1.0%, features a strong balance sheet that leaves the company positioned to endure difficult times, BoA added.

“Risks to the downside are that margins are pressured as volumes return at scale, that payor mix deteriorates quickly as unemployment rises, that labor costs continue to rise, or that volumes reaccelerate slower than expected following COVID-19,” BoA wrote.

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UnitedHealth Group Earns Place Among Four Dividend-paying Health Care Investments to Buy

For health care investors who are looking ahead to 2022, MCO should have reduced risk by then when some normalcy should return to the industry as COVID-19 risks subside. In sum, 2021 offers an economic reopening trading opportunity for hospital stocks, while the theme of 2022 should be normalization and aid MCO equities, according to BoA.

“Although we expect volumes to accelerate, we don’t see risk to MCO numbers on conservative guidance and strong reserves but do believe that multiple expansion from here is unlikely until investors can fully turn their attention to what will likely be a better 2022 — likely sometime in the August-October time frame,” BoA wrote. “As a result, we continue to favor hospitals over MCOs for 2021, but see MCOs starting to work better as we near 2022.”

Despite recent signs of recovery, MCOs may warrant caution from investors about pent-up demand returning by the second half of 2021. However, COVID headwinds in 2021 should become tailwinds in 2022 to propel MCOs, BoA predicted.

UnitedHealth Group (NYSE:UNH), a Minnetonka, Minnesota-based provider of health care products and insurance services that offers a 1.4% current dividend yield, should hit its stride again by third-quarter 2021, when BoA predicted the company would beat analysts’ expectations and possibly boost long-term growth prospects in 2022. The next run for UNH and its peer MCOs could start in August 2021 with “easy” comparisons from a COVID-ravaged 2020, BoA continued.

BoA Gives One of Four Dividend-paying Health Care Investments to Buy a $415 Price Objective

BoA placed a $415 price objective on UnitedHealth Group, based on 22.9x 2021 earnings per share (EPS) estimate, marking a slight premium to UNH’s five-year historic average of 18.1x. That forecast is justified by strong growth potential of Optum, UNH’s Health Care Services platform, BoA opined.

Downside risks to that price objective are that health care utilization rebounds faster than expected, that growth targets for Optum are not achieved, or that political risk intensifies, BoA commented. Additional uncertainty accompanies the company naming Sir Andrew Witty as its chief executive officer to succeed David S. Wichmann, who retired after guiding UnitedHealth Group through a period of growth and innovation despite challenges posed by the COVID-19 pandemic.

“As we have come to know firsthand during his time at UnitedHealth Group, Andrew Witty combines an extraordinary breadth and depth of health care experience, sophisticated strategic thinking and outstanding leadership development skills, making him uniquely well-positioned to help the company take the next steps on its steady path to grow and deliver for its shareholders and the customers and people we are privileged to serve,” said Stephen J. Hemsley, chairman of the UnitedHealth Group Board of Directors, in announcing the leadership change.

Witty was named CEO of Optum in March 2018 and added the role of president of UnitedHealth Group in November 2019. He previously served as a UnitedHealth Group company director. From April 2020 to December 2020, Witty took an unpaid leave of absence from his UnitedHealth Group positions to serve as a global envoy for the World Health Organization’s COVID-19 efforts. He also advised the UK Government COVID Vaccine Taskforce.

Guidance for 2021 includes adjusted net earnings of $17.75 to $18.25 per share and a long-term growth rate of 13% to 16%.

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Four Dividend-paying Health Care Investments to Buy Include a Pharmaceutical ETF

Pharmaceutical companies offer another dividend-paying investment opportunity, said Bob Carlson, who also chairs the Board of Trustees of Virginia’s Fairfax County Employees’ Retirement System with more than $4 billion in assets.

“Pharmaceutical companies adapted quickly to the pandemic, shifting resources into treatments and, most importantly, vaccines,” said Bob Carlson, who leads the Retirement Watch investment newsletter. “But the stock market didn’t reward their efforts.”

Instead, pharmaceutical stocks trailed the S&P 500 during the last year, Carlson continued. Part of the reason is the vaccine makers did not receive as much money as they would have in normal times when selling their vaccines to governments, he added. Another reason they lagged is many people avoided doctor’s offices and hospitals to reduce the risk of infection, so pharmaceutical sales were not robust.

Pension fund and Retirement Watch leader Bob Carlson answers questions from Paul Dykewicz prior to COVID-19-related social distancing.

Van Eck Vectors Pharmaceutical (PPH) Is One of Four Dividend-paying Health Care Investments to Buy

Pharmaceutial stocks now sell at only 13 times earnings, well below the S&P 500’s 22 times earnings, Carlson commented. In addition, pharmaceutical stocks have not sold at a discount like that in 20 years, he added.

“The companies should benefit both from the work they did during the pandemic and from the reopening of the economy,” Carlson told me.

A good fund to consider buying is Van Eck Vectors Pharmaceutical (PPH), which Carlson described as a pure play on the pharmaceutical sector. The share price of that ETF has been climbing since early March and the fund offers a current dividend yield of 1.6%.

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SPDR Select Health Care (XLV) Gains Recommendation as One of Four Dividend-paying Health Care Investments to Buy

Another good health care ETF to consider purchasing is SPDR Select Health Care (XLV), offering a current dividend yield of 1.5%. Carlson specifically cited that one for providing exposure to the broad health care industry.

There are significant differences in the portfolios of the two ETFs, so consider “investing in both,” Carlson said.

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Newly Public Oscar Health Offers Alternative to Four Dividend-paying Health Care Investments to Buy 

BoA recently initiated coverage of New York-based Oscar Health (NYSE:OSCR), a newly public MCO, with a Buy rating. Forecasts of high growth signal a potential 50% jump in the company’s share price. Oscar Health, a technology-driven health insurance company, will be aided by new business lines, geographic expansion, proprietary technology and upside from HealthIT deals, according to BoA.

Risks include unproven technology and execution challenges, BoA continued. However, BoA described Oscar Health as one of the fastest-growing companies it tracks and deserving of a $39 price objective. Based on the stock’s closing price of $25.98 on April 1, OSCR would soar 50.1% if it attains the price target.

“OSCR is a tech-enabled health insurer that focuses on the Individual ACA Exchanges today but is rapidly expanding into other health insurance markets such as Medicare Advantage (MA) and Small Group through its partnership with Cigna,” BoA wrote. “Taken together, OSCR has good visibility into growing revenues 30%-40%-plus per year organically for the next several years and achieve Insurance segment profitability by 2023.”

OSCR has entered new markets and quickly increased its share of them by achieving 70% membership growth in 2020, despite a relatively stagnant overall individual market, according to BoA. There is plenty of space left for geographic expansion to continue, but OSCR is also poised to benefit from legislative tailwinds as President Biden’s agenda is set to bolster enrollment by increasing subsidies and making them more widely available.

The MCO also recently expanded into the fastest-growing segment of Managed Care, Medicare Advantage and the underpenetrated Small Group employer market with less than 1% share in each product, BoA commented. Finally, OSCR can monetize its technology through arrangements with smaller MCOs in what could be a $123 billion opportunity, BoA added.

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Kramer Likes OSCR as One of Her Favorites Outside the Four Dividend-paying Health Care Investments to Buy

“Oscar is extremely interesting now that it’s gone public,” said Hilary Kramer, who hosts the nationally aired “Millionaire Maker” radio program and heads the GameChangers and Value Authority advisory services. “We’re looking for the bottom before buying in.”

Kramer is the leader of the IPO Edge trading service that focuses solely on pre-IPO and new publicly traded companies.

Paul Dykewicz conducts a pre-COVID-19 interview with Hilary Kramer, whose premium advisory services include IPO Edge, 2-Day Trader, Turbo Trader and Inner Circle.

COVID-19 Threat Remains an Ongoing Risk, Despite Vaccinations

COVID-19 vaccinations are giving hope that new cases and deaths caused by the virus will slow but the pandemic persists. The Food and Drug Administration (FDA) recently approved a third COVID-19 vaccine to allow additional people to be vaccinated but cases are surging again in close to 20 states.

U.S. COVID-19 cases reached 30,539,760 and led to 553,138 deaths, as of April 2. COVID-19 cases worldwide have hit 129,649,046, while deaths have soared to 2,828,554, according to Johns Hopkins University. America has the dreaded distinction as the nation notching the most COVID-19 cases and deaths.

The four dividend-paying health care investments to buy provide investors with worthy ways to profit from the expedited rollout of COVID-19 vaccines. Increased COVID-19 vaccine availability and the continuing economic reopening specifically are two big pluses that should help to lift the four dividend-paying health care investments to buy.