4 HMOS For Gains Amid Constant Regulatory Chaos

Healthcare, particularly Obamacare, had been at the receiving end of President Trump, even before he assumed office. The Republicans’ repeal and replace efforts have, however, failed, with the American Health Care Act (AHCA) not getting enough support in the House, thanks to a solid opposition from both conservative and moderate lawmakers.

Failure of Last-Ditch Efforts

The most recent effort, in the form of the Graham-Cassidy bill, also failed to get any success, due to numerous suggestions having been not well received by the industry participants. Among the most unpopular of them were putting an end to individual and employer mandate, giving a block grant to Medicaid, loosening provisions with regard to pre-existing conditions, elimination of Obamacare subsidies that lower premiums, deductibles and co-pays, plus ending cost-sharing subsidies by 2020.

Also, CBO (Congressional Budget Office) analysis of the proposal fund that millions of Americans would lose health coverage due to $1 trillion in cuts to Medicaid through 2026, and that the bill would have resulted in loss of health insurance coverage, has destabilized insurance markets and decreased access to affordable coverage and care for commoners.

A Short-Lived Relief?

Though the failure of final attempts to undo Obamacare brought a sigh of relief to the industry, it should only be temporary, given the recent comments made by Chairman of the Republican Study Committee, Mark Walker, who stressed efforts to continue with the fight to remove Obamacare.

How to Play the Sector?

Amid this conundrum, investors primarily want to invest in stocks with a robust business model to protect and shield from market swings. Many good players from the space have remodeled their business mix, diversified into new product classes, new territories and added new functionalities to provide them with an armor against market vagaries.

Insurers’ share price performance and steadily growing business profits stand as a testament to their ability to successfully sail through these high tides, created by these ill-fated reform proposals ever since.

Though the repeal-and-replace efforts have been creating noise causing investors to shy away from the sector, it would be unwise to turn a blind eye to some stocks in this space, which offer solid businesses to serve up handsome returns over time.

These stocks sporting a favorable Zacks Rank are indicative of witnessing positive estimate revisions over time, which generally translate into rapid price appreciation.

They also pride over a positive earnings surprise history and have outperformed the industry’s increase of 44% in the past year. Additionally, they sport a Value Style Score of A or B. Back-tested results show that stocks with a Value Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy), effectively outperform other stocks.

Some of our preferred choices are:

Anthem Inc. (NYSE:ANTM) carries a Zacks Rank #2. It sports a Value score of A.
The stock beat estimates in three of the last four quarters, with an average positive surprise of 8.6%. Also the stock has seen the Zacks Consensus Estimate for 2017 and 2018 being revised 0.7% and 0.3% upward, respectively, over the last 90 days. The company returned 55% in a year. You can see the complete list of today’s Zacks #1 Rank stocks here.

The company is poised for long-term growth, given low exposure to the troubled health insurance exchanges and relatively small share of revenue from Medicaid, which might see change in funding. Also, a strong balance sheet offers the potential for accretive deals.

UnitedHealth Group Inc. (NYSE:UNH) carries a carries the same bullish Zacks Rank of 2. It sports a Value score of B. The stock beat estimates in each of the last four quarters with an average positive surprise of 4.6%. Also, the Zacks Consensus Estimate for 2017 and 2018 has been inched up 0.7% and 0.4%, respectively, in the last 90 days. The company returned 45% in the past year.

UnitedHealth is the leader in the health insurance space with massive diversified operations. The company’s focus on growing health services business named Optum as well as expansion of international operations are particularly impressive. It is also broadening reach in the Medicare business, claiming a huge demand, thanks to the growing baby boomer population.

Centene Corp. (NYSE:CNC) is also a Zacks Rank #2 company. It sports a Value score of A. The stock beat estimates in three of the last four quarters, with an average positive surprise of 7.7%. Also, the Zacks Consensus Estimate for 2017 and 2018 has been raised 3.4% and 1.3%, respectively, over the last 90 days. The company returned 55% in a year’s time.

Centene has a relatively larger portion of revenues coming from Medicaid business, which might notice a change in funding and affect this business line for the insurer. The company’s growth of its Medicare business as well as flourishing international markets should fetch long-term growth.

Cigna Corp. (NYSE:CI) carries a Zacks Rank #2. It sports a Value score of B. The stock beat estimates in each of the last four quarters with an average positive surprise of 10%. Also, the Zacks Consensus Estimate for 2017 and 2018 has been nudged up 2.8% and 1.3%, respectively, in the last 90 days. The company returned 50% over a year.

The insurer is poised for long-term growth on the back of a robust Global Supplemental business, growing Government business and an increasing membership. Its strong capital position will also allow investments in business portfolio. In addition, strategic mergers and acquisitions, plus share repurchases will pave way for the company’s future growth.

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