Five Health Insurance Stocks to Avoid

President Barack Obama's proposed health care shake-up took no prisoners last week.

The president's plan, which could boost competition among insurers, pushed the Dow Jones U.S. Health Care Providers index down 10% on Thursday, the worst industry decline that day. Humana (HUM) lost 20% while UnitedHealth Group(UNH) dropped 13% and Aetna(AET) tumbled 11%.

Obama's reform program targets Medicare Advantage plans, through which 11 million senior citizens receive medical and prescription drug benefits. Reimbursements to companies that administer these plans are 15% higher, on average, than those for comparable Medicare services. The new administration aims to save $175 million over 10 years by requiring insurers to bid to participate in the plans.

Investors should exercise caution before buying shares of these companies, including the five on the accompanying table. These stocks received overall grades in the C range, the equivalent of a "hold" recommendation.

Even before the president's budget was made public, TheStreet.com Ratings gave four of these stocks D-range risk grades on a scale of A-plus to E-minus. The lone exception, WellPoint(WLP), had a C-minus mark, one step from "very cautious" territory.

The stocks have been trading at less than 10 times earnings expected by analysts this year. In light of Obama's proposals, investors should look hard at the companies' higher-than-average risk grades.

HEALTH-CARE BENEFITS and SERVICES STOCKS: AVOID THE TEMPTATION OF LOW P/E RATIOS Company AETNA INC CIGNA CORP HUMANA INC UNITEDHEALTH GROUP INC WELLPOINT INC Ticker AET CI HUM UNH WLP TheStreet.com Ratings Reward Grade B- C+ B B C+ TheStreet.com Ratings Risk Grade D+ D D+ D+ C TheStreet.com Ratings Overall Grade C C- C+ C C TheStreet.com Ratings Recommendation Hold Hold Hold Hold Hold Recent price 29.82 18.67 40.54 27.98 41.45 Market Cap ($Mil.) 13,750.0 5,073.1 6,839.5 34,012.9 20,658.2 Total Assets ($Mil.) 50,724.7 40,065.0 13,041.8 55,815.0 48,403.2 Total Debt ($Mil.) 3,269.2 1,793.0 1,937.0 12,794.0 8,841.6 Latest Fisc. Yr. Revenue ($Mil.) 27,599.6 17,623.0 28,946.4 81,186.0 61,251.1 Cash Flow from Operations ($Mil.) 2,065.5 1,342.0 982.3 4,238.0 2,535.4 Earnings Before Interest & Taxes ($Mil.) 2,912.7 1,753.0 1,073.1 6,300.0 3,733.6 EPS - Latest Avail. 12 Mos. 2.83 1.04 3.83 2.40 4.76 EPS - Curr. Year Consensus 3.90 3.90 5.95 3.00 5.70 EPS - Next Yr. Consensus 4.29 4.20 6.30 3.29 6.18 Price/Book Ratio N/A 1.4x 1.5x 1.6x 1.0x Ret'n on Equity (%) 17.6 6.2 14.5 14.3 11.6 P/E - Current Year 7.6x 4.8x 6.8x 9.3x 7.3x P/E - Next Year 7.0x 4.4x 6.4x 8.5x 6.7x Dividend Yield (%) 0.13 0.00 0.00 0.11 0.00 Source: Source: TheStreet.com Ratings (Data as of 2/20/2009). For an explanation of our ratings, click here

Click here to find out how Obama's plan affected exchange-traded funds.

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