This Day On The Street
Continue to site right-arrow
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
TheStreet Open House

ObamaCare Upheld: Health Care Stock Winners and Losers

Stocks in this article: THC CNC MDT WLP AET AMGN CELG CI CYH LPNT BSX PFE

NEW YORK ( TheStreet) -- Despite increasingly dire predictions from virtually all sources, the Supreme Court of the United States today voted 5-to-4 to support President Obama's healthcare reform law, known formally as the Patient Protection and Affordable Care Act (PPACA). Surprisingly to many conservatives, Chief Justice John Roberts joined the majority. This is almost exactly in-line with my predictions from few weeks ago and finally removes the uncertainty that has hovered over healthcare for the past few years.

The decision was just announced so these are my first impressions, but I think the ACA ruling is a clear positive for nearly all subsectors of healthcare. Investors, both professional and retail, at last know what the landscape for healthcare will look like over the next decade. The removal of uncertainty, a killer for investor confidence, is critical.

Importantly, the Supreme Court upheld the individual mandate; this provision requires that everyone have health insurance or pay a penalty, which the Court found constitutional under Congressional powers to tax. (Ironically, the Administration had been defending the mandate largely based on the Commerce Clause, which gives the Federal government the ability to regulate interstate commerce.) In upholding Title I of the ACA (which includes the mandate), several related provisions -- such as guaranteed issue, which forbids denial of coverage, and community rating, which limits the premium differential between the healthiest and sickest individuals -- remain law. The profitability limits on managed care companies, known as medical loss ratio (MLR) minimums, also stays put. I think managed care can manage (pun attack!) these changes.


Although investors' reaction thus far has been to sell the public managed care stocks -- WellPoint (WLP), United Healthcare (UNH), Aetna (AET - Get Report), and Cigna (CI) -- I think that's a mistake and more reflective of short-term sentiment, which had favored repeal of the mandate, than longer-term fundamentals. If I had to pick, I would buy Cigna right here. The company has very little ACA exposure, a good management team, and a solid business. Most of the others should recover over time as well.

A word of caution: The court partially invalidated the ACA's Medicaid expansion, which could be a point of confusion for managed care companies focused on Medicaid, such as Centene (CNC - Get Report) ( United Healthcare (UNH) also has a significant Medicaid business). Essentially, the Court ruled that Congress could not threaten penalties (read: take away funding) if a state failed to comply with the Medicaid expansion. This might create uncertainty about what states will do, given obviously strained budgets. On the other hand, these companies will still get more patients. I'm not really sure how to think about this, so I'm going to stay away from the Medicaid stocks for now.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link 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

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, 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
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,387.21 -291.49 -1.65%
S&P 500 2,029.55 -27.54 -1.34%
NASDAQ 4,681.4970 -90.2660 -1.89%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs