A landmark Supreme Court judgement has removed the shadow of a doubt haunting the Affordable Care Act (ACA). It has come as a welcome relief to citizens across states without state-run exchanges. In the event of an adverse ruling, the majority of those covered under Obamacare would stand to lose their insurance subsidies. Additionally, it has cleared the air for the likes of hospitals and insurers, which gained following news of the ruling.
Insurance Stocks Gain
Since the bill was signed into law by President Obama on Mar 23, 2010, the S&P 500 has gained over 81%. In comparison, United Health Group UNH, Aetna AET, Cigna CI, Humana Inc. HUM and Anthem Inc. ANTM have outperformed with 274.5%, 308.4%, 386.6%, 307.5% and 163.2% gains, respectively.
The broader health care sector gained 0.6% on Jun 25 following the Supreme Court’s decision in favor of Obamacare. It was the only sector that registered gain on Thursday’s trading among the major S&P 500 sectors. Meanwhile, prominent health insurers – UnitedHealth, Humana, Anthem, Aetna and Health Net, HNT – rose 2.7%, 7.1%, 1.4%, 3.8% and 2.1% respectively.
Bright Outlook
After some initial opposition, insurers have changed their outlook toward the law. They have also provided technical assistance to the government when the public exchange suffered glitches during its debut.
Most of the players are now looking for newer avenues to grow their business. They are re-examining their entire business model from pricing, product innovation, risk management, distribution and claims management for a realistic pace of growth.
Industry Consolidation
Presently, UnitedHealth and Humana together control over 10% of the market. However, sharp consolidation is likely to occur in this market. Carriers in the health insurance sector are in a race to win Medicare Advantage market share and the fastest way of achieving the target is by acquiring a company in the same business.
Additionally, the major focus of the health insurance business, providing coverage to big employers, is growing at a snail’s pace. Consolidation will help companies reduce costs and pull their weight when they negotiate with health-care providers.
Our Choices
Below we present three stocks set to benefit from these trends. Finding a great growth stock can be a tough task. But thanks to our new style score system we have been able to identify a few growth stocks which have incredible potential in the near term.
Our research shows that stocks with Growth Style Scores of ‘A’ or ‘B’ when combined Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) offer the best investment opportunities in the growth investing space.
Anthem, Inc. is one of the largest publicly traded managed care organizations in terms of membership.
Anthem holds a Zacks Rank #2 (Buy) and has a Growth Style Score of ‘A.’ The company has expected earnings growth of 13.9% for the current year.
The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 16.33, lower than the industry average of 17.40. The Zacks Consensus Estimate for the current year has been revised 2.8% upward over the past two months.
Aetna Inc. is a provider of healthcare, dental, pharmacy, group life, disability, and long-term care benefits.
Apart from a Zacks Rank #2 (Buy), Aetna has a Growth Style Score of ‘A.' The company has expected earnings growth of 10.5% for the current year.
It has a P/E (F1) of 17.57x marginally higher than the industry average of 17.40x. The Zacks Consensus Estimate for the current year has been revised 2.5% upward over the past two months.
Health Net, Inc. is one of the country's major publicly-traded managed healthcare companies, offering a full range of healthcare services.
Health Net holds a Zacks Rank #2 (Buy) and has a Growth Style Score of ‘A.’ The company has expected earnings growth of 39.8% for the current year. The Zacks Consensus Estimate for the current year has been revised 2.1% upward over the past two months.
Obamacare has received a major new lease on life following the Supreme Court’s ruling. Insurance stocks are expected to exhibit strong growth going forward. The promise of strong growth, backed by strong fundamentals, means these stocks from the healthcare insurance domain would make good additions to your portfolio.
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