Hot Picks: A Deep Slump in U.S. Healthcare Is Now Fueling Valuable Investment Chances, an Analyst Suggests
The U.S. healthcare industry has significantly underperformed compared to the broader market over the last ten years, but this prolonged downturn is now sparking intriguing investment possibilities, according to a prominent value investor. Ongoing challenges like squeezed margins in managed care and a slowdown in clinical research have caused multiple companies to trade at prices well below their true long-term earnings potential.
BNN Bloomberg spoke with Alex Fitch, a partner, portfolio manager, and director of U.S. research at Harris Associates, who shares his perspective on where mispriced values are taking shape and why he expects the healthcare sector to rebound soon.
Main Insights
- Over the past decade, several subsectors within U.S. healthcare — particularly managed care and clinical research — have become undervalued due to continuous underperformance.
- Changes in healthcare policies combined with rising costs have strained profit margins, forcing many insurers to incur losses, especially in Medicaid and health exchange markets.
- Companies like Centene and Molina are poised to gain as pricing structures reset and competitors pull out of unprofitable market segments, ultimately boosting mid-cycle earnings expectations.
- Molina’s strong leadership and operational efficiency offer a safety buffer, enabling it to stay profitable even amidst sector-wide downturns.
- IQVIA and similar clinical research organizations appear to be at the onset of a recovery phase aligned with biopharma R&D normalization following pandemic-related distortions.
Interview Highlights:
ANDREW: Welcome to Hot Picks. Today we have Alex Fitch from Harris Associates, who mentions that for many years, healthcare holdings were scarce in his portfolio due to high valuations. However, recently the sector has lagged behind the S&P 500, creating multiple attractive opportunities. Alex, thanks for being here. Could you start by explaining what Centene does and why it catches your interest?
ALEX: Thanks, Andrew. At Harris and Oakmark, our style is long-term value investing. For quite some time, healthcare stocks seemed overvalued, so we found better bets elsewhere. That's shifted recently, especially with the tough times in managed care over the last two years. Managed care has been hit hard by two main issues: shifting policies that have altered risk mixes unfavorably, and a sharp surge in healthcare costs. Together, these factors mean premiums often don't cover costs, particularly in Medicaid and the exchanges where Centene is deeply involved.
Centene is a major player in these markets and has seen earnings drop dramatically—from around $7 per share in 2023-2024 to roughly $2 this year—which the stock price reflects. The silver lining is that managed care is a short-cycle insurance business that reprices annually. Historically, low margins correct themselves—as seen in 2015 and 2020 when margins bounced back after downturns.
Today, we see all the signals for a recovery: public exchange operators are losing money, with CVS planning to exit; Medicaid providers are also struggling but states are increasing rate updates. Investors focus on when recovery happens—three quarters, six quarters—but we are patient, valuing the stock at around $39 now against a future $7 earnings power, which feels well compensated by a 5.5x earnings multiple.
ANDREW: Tight on time, but what about Molina Healthcare?
ALEX: Molina’s story is similar but with two advantages: it’s arguably the best-run company in the space and the most efficient. While the average Medicaid company is losing money, Molina still makes about a 2% profit margin. If we reach a normal cycle where companies earn their cost of capital, Molina’s profits could more than double.
This operational efficiency offers a margin of safety; it’s earning roughly $13 per share this year, with the stock at $145, meaning we pay about an 11x multiple on trough earnings. Adjusting for an anticipated market recovery, we see a mid-single-digit multiple on normalized earnings — very attractive.
ANDREW: Lastly, IQVIA is quite different. Can you explain what they do?
ALEX: IQVIA operates clinical trials for pharmaceutical companies—a business akin to collecting royalties on pharma R&D spending. This model was highly prized and grew consistently before COVID. However, during the pandemic, R&D spending spiked unnaturally, pulling work forward. That inflated revenues temporarily, and the past three years saw flat or negative growth as a correction.
We believe this slowdown is cyclical, not structural. Now, biopharma is ramping up spending again, and IQVIA’s growth is picking up. It's like what managed care might look like in a year or so—investors starting to trust that the worst is over and growth is ahead. While IQVIA shares are up about 50% from their lows, we think recovery is just beginning, and returns could rebound to previous norms.
ANDREW: Thanks so much, Alex.
ALEX: My pleasure.
ANDREW: That was Alex Fitch, partner, portfolio manager, and head of U.S. research at Harris Associates.
DISCLOSURE: Personal family portfolio/fund holdings include Centene (NYSE: CNC), Molina Healthcare (NYSE: MOH), and IQVIA (NYSE: IQV).
This BNN Bloomberg summary and interview transcript from November 26, 2025, featuring Alex Fitch, was compiled with AI assistance. Original reporting, interview questions, and added explanations were developed by BNN Bloomberg journalists. An editorial review ensured accuracy and compliance with BNN Bloomberg’s editorial standards.
