Jim Cramer kicked off 2024 with a positive note for the healthcare sector, saying in a program in January that the biopharmaceutical sector had apparently “rediscovered its urge to merge.”
Rediscovering the "Urge to Merge"
Cramer said M&A activity has been a big driver for the industry because when major companies lose patent protections for their drugs, they buy small biotechnology companies which also need bigger companies for distribution, sales and marketing infrastructure. Cramer said because of these complementary dynamics, everybody wins, and “you win if you own them."
The Tide is Turning for Healthcare Companies According to Cramer
However, Cramer said that the M&A activity in the healthcare industry came to a halt amid FTC’s brutal stance against mergers, headed by FTC chairperson Lina Khan, who, according to Cramer, thinks all kinds of M&A activity is anticompetitive. But the environment is now changing according to Cramer. He highlighted the FTC’s failure to block’s Amgen’s $27.8 billion deal to buy Horizon Therapeutics. This development was “transformative” for the industry, Cramer said. Another deal that brought optimism in the industry was Pfizer’s buyout of Seagen for $43 billion. Cramer said that perhaps the “anger” against corporate America is subsiding too, which is why healthcare companies are deciding to give M&A “another shot.” Cramer mentioned a host of deal announcements from major companies like AbbVie, Roche and AstraZeneca.
Jim Cramer is also highly bullish on weight loss and diabetes drug companies and regularly talks about how GLP-1 drugs are bringing new opportunities for investors. In our recent article we also talked about how the rise of weight loss drugs and new growth catalysts are causing corporate insiders to pile into several healthcare stocks.
Jim Cramer is Bullish on Small-Cap Healthcare Stocks in 2024
Jim Cramer said in one of his latest programs on CNBC that he continues to believe that small-cap stocks would rebound in 2024. However, he thinks that the broader small-cap stock indices are underperforming the S&P 500 even during the 2024 stock rally, and there are many reasons for that. Without going into those reasons, Cramer discussed some of his top small-cap healthcare picks in detail. Cramer said that there are about 400 healthcare stocks in the small cap-focused Russell 2000. The CNBC host said most of these stocks are biotech names and “most of them are bad.” Jim Cramer said he ran a screen for these stocks with an intention to choose small-cap healthcare stocks with positive earnings and “reasonable valuations” and ended up getting just 48 stocks as a result. From these 48 companies, Cramer focused on five small-cap healthcare stocks which we discuss in detail in our article.
Cramer's Favorite Healthcare Stocks for 2024
For this article we watched latest programs of Jim Cramer and picked his top healthcare stock recommendations. We have sorted the list based on hedge fund sentiment, courtesy of Insider Monkey's database of 933 hedge fund and their stock holdings. Some top names in the list include Eli Lilly And Co (NYSE:LLY), UnitedHealth Group Inc (NYSE:UNH) and Abbott Laboratories (NYSE:ABT). Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here).
Jim Cramer’s 10 Favorite Healthcare Stock Picks in 2024
Jim Cramer thinks one of the most “investable” themes in the healthcare industry is moving away from providing care in hospitals to “other, lower cost settings” like outpatient centers of patients’ homes. Addus Homecare Corporation (NASDAQ:ADUS) does exactly that since it offers in-home medical care and in-home assistance, in addition to hospice care services at home. Cramer said that currently Addus Homecare Corporation (NASDAQ:ADUS) makes most of its revenue from Illinois, New York and New Mexico but it’s expanding to new areas via acquisitions. Cramer highlighted Addus Homecare Corporation's (NASDAQ:ADUS) $106 million acquisition of Tennessee Quality Care last year. Cramer also said Addus Homecare Corporation (NASDAQ:ADUS) posted strong “top and bottom line beat” in its latest earnings report and the management sounded optimistic and upbeat about 2024.
Integer Holdings Corp (NYSE:ITGR) ranks ninth in our list of the best healthcare stocks to buy according to Jim Cramer in 2024. Integer Holdings Corp (NYSE:ITGR) is a medical device outsource (MDO) manufacturer. Cramer said that major healthcare companies like Medtronic, Abbot Laboratories and Boston Scientific go to companies like Integer Holdings Corp (NYSE:ITGR) to actually “design their stuff.” Cramer said that Integer Holdings Corp (NYSE:ITGR) benefits from high healthcare utilization rates since it’s taking “years” for people to get their non-urgent medical procedures due to the pandemic effects. Cramer also said that Integer keeps its portfolio “fresh” by making acquisitions.
In addition to ITGR, Cramer is also recommending Eli Lilly And Co (NYSE:LLY), UnitedHealth Group Inc (NYSE:UNH) and Abbott Laboratories (NYSE:ABT).
Healthcare logistics company Owens & Minor Inc (NYSE:OMI) is one of the best small-cap healthcare stocks to buy in 2024 according to Jim Cramer. He said Owens & Minor Inc (NYSE:OMI) came on his radar during the pandemic days because Owens & Minor Inc (NYSE:OMI) made Personal Protective Equipment (PPE). Cramer said that Owens & Minor Inc (NYSE:OMI) made good use of the money it made during the pandemic as it initiated “a pair of” acquisitions in the home health space. As a result, Owens & Minor Inc's (NYSE:OMI) “patient direct segment” has seen a lot of growth while its PPE segment declined. Cramer said Owens & Minor Inc (NYSE:OMI) conducted its investor day event in December where it outlined strong earnings growth expectations which impressed Cramer.
In February, during an earnings call, the company talked about guidance and performance of its Patient Direct segment:
"As a result of this significant cash flow, we reduced total debt by $49 million for the fourth quarter and by $403 million for the full year, bringing the balance to $2.1 billion at year-end. In addition, we reduced net debt by $76 million in the fourth quarter and by $577 million for the full year, bringing the balance to $1.9 billion. Net book leverage was 3.5 times at the end of the fourth quarter. Now, let’s look at our full year 2024 guidance. Consistent with what we discussed on the third quarter call and at Investor Day, we expect net revenue to be in the range of $10.5 billion to $10.9 billion, adjusted EBITDA to be in the range of $550 million to $590 million, and adjusted EPS to be in the range of $1.40 to $1.70. Also, as previously discussed, we expect the earnings trajectory to follow our normal seasonal pattern throughout the year.
Biotechnology company Catalyst Pharmaceuticals Inc (NASDAQ:CPRX) is one of the best small-cap healthcare stock picks of Cramer this year. Cramer said Catalyst Pharmaceuticals Inc (NASDAQ:CPRX) is more of an “investor” than an “inventor” since it buys promising early stage drugs and then brings them into the market. Cramer said Catalyst Pharmaceuticals Inc (NASDAQ:CPRX) recently launched its third drug.
In January 2024, Cramer had said that since he didn’t know anything about Catalyst Pharmaceuticals Inc (NASDAQ:CPRX) he cannot comment on it. However, in his latest program, Cramer said the stock has gone “nowhere” since he told his viewers to “ignore” it which means he hasn’t “missed anything” and it’s still a good time to buy the stock.
Fertility benefits management company Progyny Inc (NASDAQ:PGNY) is one of the healthcare stock picks of Jim Cramer in 2024. Cramer recently said he’s been “loosely following” the company since it went public. Cramer said that businesses partner with Progyny Inc (NASDAQ:PGNY) to offer family building benefits to their employees. Cramer said Progyny Inc (NASDAQ:PGNY) has been a “rapid grower” but the stock does not reflect this. He thinks the stock has been “stuck” since 2022 and recently it saw a significant pullback amid a guidance that was “confusing” and some “timing issues.” However, Cramer likes Progyny Inc's (NASDAQ:PGNY) revenue growth (18% to 21%) and earnings growth (10% to 14%). Cramer reiterated that the stock is “enticing.”
In addition to PGNY, Cramer also likes Eli Lilly And Co (NYSE:LLY), UnitedHealth Group Inc (NYSE:UNH) and Abbott Laboratories (NYSE:ABT).
Polen Global SMID Company Growth Strategy made the following comment about Progyny, Inc. (NASDAQ:PGNY) in its Q3 2023 investor letter:
“We bought a new position in Progyny, Inc. (NASDAQ:PGNY), a company owned in our U.S. strategies for some time. They are a leading provider of fertility benefit solutions, and through their differentiated approach, their clients can pursue the most effective treatment and achieve optimal outcomes. We believe the company has only a mid-single digit share of its potential total addressable market and is the most dominant player within the fast-growing managed care category. They are already profitable, earn high returns on incremental capital, and have plenty of runway to grow top-line growth as they continue to win new clients and add new services.”
