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7 Health-Care Stocks to Weather Court Challenges (Update1)

(Story updated to add that TriWest Healthcare Alliance will challenge UnitedHealthcare's new Defense Department contract award.)

BOSTON ( TheStreet) -- The Supreme Court hearings this week on reforming the two-year-old health care laws is stirring investor concerns.

The court has until June to hand down a decision on possible reforms to the Affordable Care Act (ACA), but participants at the hearings may tip their hand and give investors some direction on what, if any, industry players will be affected.

Health care stocks have underperformed the broader market this year amid the uncertainty over the review. The sector, as tracked by S&P, is up 6.4% this year, versus the S&P 500's 11.6% gain.

The consensus now is that there won't be significant changes to the ACA, and that is seen as a mild positive for most in the industry, particularly the big managed-care companies.

Goldman Sachs (GS) said in a research note this week that in its poll of over 200 institutional investors, 70% said they expect the ACA to be upheld by the court.

A key and polarizing issue is whether Congress holds the constitutional power to require Americans to carry health insurance or pay a penalty.

Goldman analysts said "hospital stocks would see the most upside on a ruling to uphold the individual mandate (which requires that individuals buy insurance), and we expect the most downside in a decision other than to uphold the law."

But Citigroup (C) analyst Carl McDonald said in a research note Monday that he doesn't think managed-care companies will have much negative or positive out of this week's events.

But stocks are likely to move on the court decision, McDonald writes. "The good news for us is that under every scenario but one, we believe the managed-care stocks are going higher, in some cases meaningfully higher.

"In the event of the one scenario perceived negative by the market, which is where the Supreme Court strikes the individual mandate, but upholds the rest of the legislation, (it) really isn't all that bad fundamentally" for big managed-care players.

S&P Capital IQ has a similar take, as it says "managed-care companies could benefit regardless" of whether or not the health-care-reform law is scrapped, an event it said is "unlikely."

That's because the current ACA law is expected to increase the number of insured patients seeking medical help and push them into getting coverage.

But on the down side for for-profit hospitals, "it will also phase in Medicare payment cuts to hospitals and will make it harder to negotiate reimbursement rates," which will cut into profits, S&P said.

"Whether the insurance-buying mandate is upheld, and whether the court rules the rest of the law can stand without it, will be key for big managed-care firms," S&P said, including WellPoint (WLP), UnitedHealth Group (UNH - Get Report) and Aetna (AET - Get Report).

S&P is bullish on managed-care companies, with "buy" ratings on the five biggest.

Here are seven health care providers that could be impacted by the Supreme Court's decision on health care reform and their prospects:

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