Novartis AG (NVS): Among the Cheap Healthcare Stocks to Buy Heading Into 2025

Healthcare stocks have had a challenging year, with the U.S. spending over twice as much on healthcare as the OECD average, despite these difficulties. This discrepancy highlights the inefficiency and unsustainability of the current system, with 58% of hospital bad debt originating from insured patients. The future of the American healthcare system appears bleak without substantial intervention and reform. However, for investors looking to capitalize on the sector's potential turnaround in 2025, the challenge is to find undervalued stocks with room to grow.

To identify these opportunities, we screened the S&P 500 Healthcare sector index for stocks trading below their average analyst target prices, as calculated by FactSet. Among those stocks, we selected Novartis AG (NVS), which has a trailing P/E ratio of 11.19 and a forward P/E ratio of 11.817356, indicating that it is relatively undervalued compared to its peers.

Novartis AG, based in Basel, Switzerland, is a global healthcare company specializing in developing, manufacturing, and marketing prescription and generic drugs, as well as eye care products. Its focus spans therapeutic areas such as cardiovascular, renal and metabolic, immunology, neuroscience, and oncology, as well as ophthalmology and hematology. The company's key products include Adakveo for sickle cell disease, Afinitor for cancer, Aimovig for migraines, and Beovu for macular degeneration, alongside generics and biosimilars through its Sandoz subsidiary.

Novartis AG announced a 10% increase in net revenues for the third quarter of 2024, driven by strong demand for important goods like Entresto and Cosentyx, which witnessed increases in sales of 26% and 28%, respectively. The company's core operating income increased by 20%, and its core margin increased to 40.1%, representing a 340 basis point improvement from the previous year. These factors highlight Novartis as one of the promising cheap healthcare stocks for investors to consider. In comparison to the prior year, core earnings per share (EPS) increased by 20% to $2.06.

Novartis AG reported a 20% increase in core operating income and an 11% increase in net sales for the first nine months of 2024. During this time, free cash flow hit a record $12.6 billion, up 15% from the previous year, and core EPS was $5.83, up 21%. The FDA just approved the company's early breast cancer treatment, which could increase its target market by threefold.

Analysts hold a consensus Moderate Buy rating on the stock, with an average price target of $121.25, which is 23.23% higher than the current price. The company's dividend yield is 3.84%, and its dividend growth rate is 8.88% per year, indicating a strong commitment to returning value to shareholders.

Novartis AG's P/E ratio is 11.19, which is lower than the average P/E ratio of its peers in the healthcare sector. The company's expected EPS growth rate of 4.58% over the next five years is relatively lower compared to its peers, but its undervalued valuation and strong dividend yield make it an attractive investment opportunity.

In conclusion, Novartis AG (NVS) is a cheap healthcare stock with room to grow heading into 2025. Its undervalued valuation, strong dividend yield, and potential for growth make it an attractive investment opportunity for investors looking to capitalize on the sector's turnaround. However, it is essential to consider other factors, such as the company's fundamentals, growth prospects, and market conditions, before making a final investment decision.