3 Value Stocks In Health Insurance Promising Solid Returns

The health insurance industry is continuing its steady ride despite significant pullbacks. Players in the industry remain poised to grow on ever-increasing demand for government plans, including Medicare and Medicaid, from baby boomers. Companies specializing in these plans like UnitedHealth Group Inc. (NYSE:UNH) and Humana Inc. (NYSE:HUM) have seen their revenues get a boost from the government business.

The HMO industry has gained from a decline in uninsured population, which consequently added to membership enrollment, thanks to the individual mandate of the Affordable Care Act (ACA). A recent survey by Gallup stated that the uninsured rate for health insurance in the U.S. was 10.9% in the fourth quarter of 2016. The rate was as high as 6.2% in the fourth quarter of 2013.

Increasing business diversification, with ancillary services and products forming a growing portion of insurers’ revenues, is also shielding insurersrom stiff regulations (mostly outside of the purview of the ACA). Credit also goes to growing international operations that have brought in geographical diversification.

Despite these positives, health insurers continue to suffer from underperforming public exchanges. Business underwritten on these exchanges resulted in significant losses for most of the players, consequently leading to a downsizing of this business.

Increasing operating cost to comply with regulations, investments in information technology, levy of fees and taxes have exerted pressure on margins.

The industry also continues to reel under regulatory uncertainty, with the proposed repeal and replacement of the old law with Donald Trump’s American Health Care Act. The bill, which is currently awaiting approval in the Senate, has some provisions favoring the players. However, with some other provisions seeming unacceptable, a lot is still up in the air.

Despite the ambiguity and chaos in the sector, there are some companies with strong business fundamental that make up for attractive bets.

How to Pick the Right Stock

Value investing is always considered wise and is one of the best investing practices that can lead to long-term gains. Value investing calls for betting on bargain stocks which are trading at prices below their inherent value (stocks that are cheap), but have strong businesses. These stocks take no time to jump when the markets goes up, thus giving investors a chance to gain from value appreciation of their holdings. The trick to successful long-term investing is in picking value stocks.

But how do we find a value stock?

There are certain parameters that can gauge a value stock. These stocks may have low valuation meaning low price-to-book ratio, low price-to-earnings ratio or a low price-to-sales ratio. They may also have a high dividend yield. While it can be a daunting task to specifically look at each parameter and hunt for a value stock our search can be made simpler by the use of the new Style Score System, designed by Zacks.

The attractiveness of a stock as an investment option is confirmed by its Value Style Score of “A” or “B.” Our research shows that stocks with Style Scores of “A” or “B” when combined with a Zacks Rank #1 (Strong Buy) or #2 (Buy) offer the best investing opportunities. Further, we have selected value stocks that have estimated earnings per share growth rate of 10% or more this fiscal year.

Three Picks

WellCare Health Plans, Inc. (NYSE:WCG) , providing managed care services targeted exclusively at government-sponsored healthcare programs, has a long-term earnings growth rate of 13.2%, and a Value and Growth Score of “A” each. The company surpassed earnings estimates in each of the last four quarters, with an average positive surprise of 59.23%.

In the last one year, this Zacks Rank #1 stock has returned an impressive 62.2%, while the Zacks categorized Medical-HMO industry has gained 32.4%. The company has an estimated earnings per share growth rate of 18.4% for 2017. You can see the complete list of today’s Zacks #1 Rank stocks here.

Anthem Inc. (NYSE:ANTM) , a healthcare company providing medical products, has a long-term earnings growth rate of 10.3%, and a Value Score and Growth Score of “A.” The company beat earnings estimates in three out of the last four quarters, with an average positive surprise of 8.36%.

In the past one year, this Zacks Rank #2 stock has enjoyed a bullish run and surged roughly 49.2%, while the Zacks categorized Medical-HMO industry has rallied 32.4%. Anthem has an estimated earnings per share growth rate of 8.18% for 2017.

Cigna Corp. (NYSE:CI) , providing health care services and products, has a long-term earnings growth rate of 13.2%, and a Value Score and Growth Score of “B”. The company delivered a positive earnings surprise in three of the last four quarters, with an average beat of 1.35%.

In the past one year, this Zacks Rank #2 stock has gained 32.5%, almost in line with the Zacks categorized Medical-HMO industry’s rise of 32.4%. The company has an estimated earnings per share growth rate of 20.3% for 2017.

Bottom Line

Despite the volatility in the healthcare sector, we suggest these stocks with positive attributes, a strong estimate revision trend and solid earnings growth forecast. These could be good bets for investors.

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