This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Health Insurance Stocks For a Republican Win

NEW YORK ( TheStreet) -- Investors busy assessing how the state of the global economy will affect their stock portfolios should start thinking about how the presidential race will weigh in.

In particular, investors may want to look at how to play the health insurance space.

Health care remains a subject of divide between the two parties, with Republicans trying to repeal Obama's nationwide health care reform since 2010. And, while it is unlikely they can overturn the entire law, they can certainly chip away at parts of it.

If Republicans take control, Citigroup estimates that large commercial providers of health insurance plans may see their earnings grow by 5% to 10%. That kind of growth would increase these companies' worth by 20%. The companies are currently estimated to see a 5% to 15% drop in earnings, according to a recent analyst report by the firm.

Within the broader managed care sector, which includes commercials plans, and Medicaid and Medicare plans, Citigroup says that valuations on most stocks should tack on at least an additional 2 multiple points. If a Republican fails to win the presidential seat but the party gains control of the senate, the valuation of the group would add up to one point.

This is all good if Republicans make a sweeping win, but what if President Obama takes office for second term? Even then, investors may benefit yet.

"The market seems to be discounting maintenance of the political status quo," writes Citigroup, which estimates that managed care stocks are trading under the 9.5x 2012 earnings estimates.

Investors may want to skew their picks toward companies providing commercial plans. Under a Republican victory, Citigroup says stocks that would benefit most in this category rank in the following order: WellPoint (WLP), Coventry Health Care (CVH), UnitedHealth Group (UNH - Get Report), Aetna (AET), CIGNA (CI - Get Report) and Health Net (HNT - Get Report).

For Medicare plans, the firm picks Humana (HUM - Get Report), HealthSpring (HS), Universal American (UAM) and WellCare (WCG - Get Report). All these companies provide elderly with Medicare through private health insurance plans called Medicare Advantage.

The idea behind investing in the above Medicare plans is that Republicans have historically encouraged seniors to enroll in Medicare Advantage programs. In addition, Citigroup notes that Republicans have been willing to give the programs a fair reimbursement. By contrast, under Obama's reform, government subsidies to the Medicare Advantage program would be gradually eliminated altogether.

On the Medicaid end of the spectrum, stocks are a tougher pick. Republicans might impact Medicaid in two ways:

The Medicaid market is expected to increase by around 30% in 2014, according to Citigroup. But, Republicans may try to do away with this expansion and cut back the money that states use to fund Medicaid programs. A company like AMERIGROUP (AGP), with a $3.3 billion market cap, for example would lose a whopping $2.5 billion in revenue, according to Citigroup.

Even so, Citigroup say that Medicaid companies would still prefer a Republican administration to a Democratic one. "Republicans are much more philosophically aligned with moving the care of the dual eligibles into managed care organizations," writes the firm.

What that means is that that those qualifying for both Medicare and Medicaid benefits maybe more inclined to find Medicaid programs under a Republican administration. According to analysts' estimates, that opportunity would deliver more than $320 billion in revenue per year for Medicaid managed care providers. By contrast, Medicaid revenue would only add over $40 billion without dual eligibility.

The bottom line is: Keep an eye on opportunities within health insurance providers, particularly commercial providers, if you believe Republicans will win the election this year. But if you believe otherwise, the space is still worth your consideration.

-- Written by Chao Deng in New York.

>To contact the writer of this article, click here: Chao Deng.

Readers Also Like:


Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
CI $144.17 0.19%
HNT $66.88 0.60%
HUM $182.48 -0.66%
UNH $121.41 0.71%
WLP $136.01 1.43%

Markets

Chart of I:DJI
DOW 17,689.86 -56.12 -0.32%
S&P 500 2,103.84 -4.79 -0.23%
NASDAQ 5,128.2810 -0.5040 -0.01%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs