Health Insurers Gain On Medicare Advantage

NEW YORK (TheStreet) -- A year ago the Supreme Court was in the midst of deliberating the constitutionality of the Affordable Care Act, otherwise known as Obamacare. After the highest court in the land let the law stand, many health maintenance stocks, also known as the health insurers, weakened to 52-week lows last July/August. At issue, the Obamacare mandated funding cuts effective 2014.

This week we learned that the cuts for Medicare Advantage plans would be less than anticipated and six of the eight health maintenance stocks I am profiling today popped to new multi-year or 2013 highs on Tuesday. As a result of these price pops, Humana ( HUM) has been downgraded to hold from buy this morning.

It's been a while since I profiled these stocks. On June 28 I wrote, How Health Care Stocks Are Faring and among the nine stock covered four had strong buy ratings and five had buy ratings. This post provided my buy-and-trade strategies as the Supreme Court deliberation was coming to an end.

In late June the medical sector was 7.4% overvalued with the health maintenance industry 5.6% undervalued. Today the medical sector is 9.7% overvalued with the health maintenance industry 5.0% undervalued. Four of the stocks profiled today are buy-rated and four are hold-rated, so the group as a whole is not as favorable today as they were on June 28.

Reading the Table

OV/UN Valued: Stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.

VE Rating: A "1-engine" rating is a strong sell, a "2-engine" rating is a sell, a "3-engine" rating is a hold, a "4-engine" rating is a buy and a "5-engine" rating is a strong buy.

Last 12-Month Return (%): Stocks with a red number declined by that percentage over the last 12 months. Stocks with a black number increased by that percentage.

Forecast 1-Year Return: Stocks with a red number are projected to decline by that percentage over the next 12 months. Stocks with a black number in the table are projected to move higher by that percentage over the next 12 months.

Value Level: Price at which to enter a GTC limit order to buy on weakness. The letters mean; W-weekly, M-monthly, Q-quarterly, S-semiannual and A-annual.

Pivot: A level between a value level and risky level that should be a magnet during the time frame noted.

Risky Level: Price at which to enter a GTC limit order to sell on strength.

Aetna ( AET) ($54.30 vs. $40.96 on June 28) - now has a hold rating versus a strong buy on June 28, and set a multi-year high at $55.37 on Tuesday. My annual value level is $51.85 with a quarterly pivot at $54.20 and annual risky level at $62.77. The weekly chart profile is positive but overbought with the five-week modified moving average (MMA) at $50.40 with the December 2007 high at $60.00.

Centene ( CNC) ($44.57 vs. $29.91 on June 28): Still has a buy rating and set a 2013 high at $48.55 on March 8. My annual value level is $42.31 with a weekly risky level at $47.24. The weekly chart profile stays negative with a close this week below the five-week MMA at $44.86.

Coventry Health Care ( CVH) ($48.27 vs. $33.23 on June 28): Now has a hold rating vs. a buy rating on June 28, and set a multi-year high at $48.67 on Tuesday. My semiannual value level is $46.31 with an annual pivot at $47.43 and monthly risky level at $53.84. The weekly chart profile is positive but overbought with the five-week MMA at $46.67.

Health Net ( HNT) ($29.12 vs. $25.17 on June 28): Now has a hold rating vs. a buy rating on June 28, and set a 2013 high at $30.61 on Tuesday. My weekly value level is $27.16 with a quarterly pivot at $29.16 and annual risky level at $32.54. The weekly chart profile is positive with the five-week MMA at $27.80.

Humana ($79.11 vs. $79.54 on June 28): Has been downgraded to hold from buy this morning after setting a new 2013 high at $82.47 on Tuesday. My weekly value level is $67.09 with a semiannual pivot at $77.58 and semiannual risky level at $87.03. The weekly chart profile shifts to positive with a close this week above the five-week modified moving average at $71.89.

UnitedHealth Group ( UNH) ($61.74 vs. $59.29 on June 28): Now has a buy rating vs. strong buy on June 28, and set a multi-year high at $63.95 on Tuesday. My weekly value level is $55.45 with a semiannual pivot at $59.89 and quarterly risky level at $69.43. The weekly chart profile stays positive with a close this week above the five-week MMA at $92.38. UNH was a member of my ValuTrader model portfolio from $54.10 on Feb. 19, and was sold Tuesday at $61.63 for a buy-and-trade gain of 13.9%.

WellCare Health Plans ( WCG) ($62.57 vs. $49.61 on June 28): Now has a buy rating vs. strong buy on June 28, and set a 2013 high at $64.29 on Tuesday. My monthly value level is $55.38 with a weekly pivot at $63.23 and semiannual risky level at $67.92. The weekly chart profile is positive with the five-week MMA at $57.40.

WellPoint ( WLP) ($68.46 vs. $69.49 on June 28): Now has a buy rating vs. strong buy on June 28, and set a 2013 high at $70.58 on Tuesday. My weekly value level is $62.96 with a semiannual pivot at $69.41 and quarterly risky level at $75.92. The weekly chart profile is positive with the five-week MMA at $64.80.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.

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