Tenet Healthcare May Benefit From Obamacare

NEW YORK ( TheStreet) -- The bad news is President Obama won. The good news is Obama won. Today the big question is: With the election results final, how will you change the way you invest?

My personal answer is I will invest the same way I did before. I will look for companies that analysts think will improve their revenue and earnings streams that can be bought for a reasonable price-to-earnings ratio.

Mitt Romney pledged that if he won he would start on day one to repeal Obamacare. Well, Obama won, so how can we benefit from Obamacare?

My pick here is Tenet Heathcare ( THC). In the past Tenet was hit with a lot of bad debt write-offs because it provided care to patients that were not covered by health insurance. If Obamacare kicks in, then just maybe the company may begin collecting for all the services it provides.

Some smart money in the market may feel the way I do because on Wednesday the volume of shares traded is soaring. During the past year, while the market as measured by the Value Line Index was up 10%, shares in Tenet were up 28%. During the last 30 days the stock is up more than 8%, and the hourly trading graph provided by Barchart.com shows solid price rebound:

Tenet Healthcare., an investor-owned health-care services company, owns and operates acute care hospitals, ambulatory surgery centers, diagnostic imaging centers, and related health care facilities in the United States. The company's general hospitals offer acute care services, operating and recovery rooms, radiology services, respiratory therapy services, clinical laboratories, and pharmacies. It also provides intensive care, critical care and/or coronary care units, physical therapy; and orthopedic, oncology, and outpatient services; tertiary care services, such as open-heart surgery, neonatal intensive care, and neuroscience; quaternary care in areas, including heart, liver, kidney, and bone marrow transplants, as well as burn services; gamma-knife brain surgery; and cyberknife radiation therapy for tumors and lesions in the brain, lung, neck, and spine.

The company also owns an interest in a health maintenance organization and operate various related health care facilities, which include a long-term acute care hospital and various medical office buildings; revenue cycle management and patient communications services businesses; physician practices; captive insurance companies; management services business that provides network development, utilization management, claims processing, and contract negotiation services to physician organizations and hospitals that assume managed care risk; and occupational and rural health care clinics.

As of Dec. 31, it operated 50 hospitals, including four academic medical centers and one critical access hospital, with a combined total of 13,453 licensed beds primarily serving urban and suburban communities in 11 states of the United States; and 98 diagnostic imaging centers, ambulatory surgery centers, and urgent care centers, as well as one emergency department in 12 states of the United States. Tenet was founded in 1967 and is headquartered in Dallas. (The preceding comes from the Yahoo! Finance profile.)

Factors to Consider

Technical Indicators Provided by Barchart.com:

The stock now rates both a 100% Barchart technical buy signal and a Trend Spotter buy signal. The price is above its 20-, 50- and 100-day moving averages, hit seven new highs and is up 8.52% in the last month. Barchart.com computes a technical support level at $23.38, and the stock has a 14-day Relative Strength Index of 64.11%. It recently traded at $26.87 with a 50-day moving average of 23.68.

Fundamental Factors:

With risk comes reward, and in the past bad debts from the uninsured have hit the bottom line. TheStreet rated the stock a D+, and the financial strength was a low C. Although Wall Street analysts think revenue will be down 3.80% this year, they expect revenue to be up 3.7% next year.

Earnings estimates are the bright spot, and a 60.1% increase in earnings is forecast for this year, followed by another 11.8% increase next year. Earnings are expected to increase by 11.73% annually for the next five years. The price-to-earnings ratio is a reasonable 17.51 in a 15 P/E market. Analysts think if their numbers are correct, investors could see an annual total return in the 25% - 30% range over the next five years.

Investor Interest:

Wall Street brokerage firms are following this stock, and 14 firms have assigned 21 analysts to monitor the numbers. They have released three strong buy, two buy and 16 hold recommendations on this stock. The individual investor over on Motley Fool has given the stock an 84% vote of confidence to beat the market. Short interest has been climbing recently, to more than 8.5 million shares, and I think the recent price movement will cause a lot of short-sellers to cover their positions.

Peer Competition:

The market is the final say, and although Tenet was up 28% in the past year, United Healthcare Group ( UNH) was up only 8%, WellPoint ( WLP) was down 16% and Cigna ( CI) was up 21%:

United Healthcare has a financial strength rating of A+ and is rated by TheStreet as an A- stock. Revenue is projected to be up 8.7% next year, and earnings are expected to increase annually by 10.48% for the next five years.

WellPoint has a financial strength of A and is rated as a B by TheStreet. Revenue is expected to increase by 8.2% next year, and earnings should increase by 8.29% annually for the next five years.

Cigna has a financial strength of B++ and TheStreet gives the stock and A rating. Revenue might be up 10.2% next year, and earnings are estimated to increase by 10.21% annually for five years.

Conclusion: With risk comes return, and I look for Tenet to benefit from Obamacare. Analysts expect the earnings to compound by 11.73% annually for the next five years and also expect the annual total return to investors to be in the 25%-30% range for that same period. The stock has gotten good support since July, and the lower 14-day turtle channel shows nice steady increases in that support as is evidenced in the chart below. If you want an Obamacare play, I think you'll find it here.

At the time of publication, VanMeerten held no positions in Tenet Healthcare, but the stock was on his new-purchase watch list.

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