NEW YORK (TheStreet) -- UnitedHealth (UNH), Anthem (ANTM), Aetna (AET), Humana (HUM), Cigna (CI), are involved in a buzz of merger and acquisition activity, as the health insurance industry is responding to the aftershocks of the Affordable Care Act. One of the aftershocks was the consolidation of hospitals as health care providers. Last year, there were 95 mergers involving regional hospitals. Left alone, these hospitals will have too much clout in setting prices of health care. To counter that clout, the market is preparing and applauding the merger of health insurance companies, which pay the fees for health care provided by the hospitals.

The possible spoiler of all these merger talks is a pending Supreme Court decision expected in June 2015 that may deal a death blow to Affordable Care Act. However, judging by the increase in the stock prices of both acquirers and acquirees, the market may well expect that the administration will get a favorable Supreme Court decision or that the Congress will "fix" the language of the Act that currently seems to suggest that health care subsidies are available only to people in states that have set up state exchanges.

So, what are the best health insurance companies investors should be buying? Here are the top three, according to TheStreet Ratings, TheStreet's proprietary ratings tool.

TheStreet Ratings projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.

Buying an S&P 500 stock that TheStreet Ratings rated a buy yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a buy yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.

Check out which health insurance companies made the list. And when you're done, be sure to read about which highly volatile tech stocks to buy now. Year-to-date returns are based on June 16, 2015, closing prices. The highest-rated stock appears last.

MET ChartMET data by YCharts
3. MetLife, Inc. (MET)

Rating: Buy, A-
Market Cap: $62.9 billion
Year-to-date return: 4.1%

MetLife, Inc. provides life insurance, annuities, employee benefits, and asset management products in the United States, Japan, Latin America, Asia, Europe, and the Middle East.

"We rate METLIFE INC (MET) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, impressive record of earnings per share growth, compelling growth in net income, attractive valuation levels and good cash flow from operations. We feel its strengths outweigh the fact that the company shows low profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 9.4%. Since the same quarter one year prior, revenues slightly increased by 6.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • METLIFE INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, METLIFE INC increased its bottom line by earning $5.42 versus $2.91 in the prior year. This year, the market expects an improvement in earnings ($5.89 versus $5.42).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Insurance industry. The net income increased by 62.5% when compared to the same quarter one year prior, rising from $1,328.00 million to $2,158.00 million.
  • Net operating cash flow has slightly increased to $2,686.00 million or 8.13% when compared to the same quarter last year. Despite an increase in cash flow, METLIFE INC's cash flow growth rate is still lower than the industry average growth rate of 21.99%.

TMK ChartTMK data by YCharts
2. Torchmark Corporation (TMK)

Rating: Buy, A
Market Cap: $7.4 billion
Year-to-date return: 7.6%

Torchmark Corporation, through its subsidiaries, provides various life and health insurance products, and annuities in the United States, Canada, and New Zealand. It operates through Life Insurance, Health Insurance, Medicare Part D, and Annuities segments.

"We rate TORCHMARK CORP (TMK) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, increase in stock price during the past year, good cash flow from operations and attractive valuation levels. We feel its strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Although TMK's debt-to-equity ratio of 0.26 is very low, it is currently higher than that of the industry average.
  • TORCHMARK CORP' earnings per share from the most recent quarter came in slightly below the year earlier quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, TORCHMARK CORP increased its bottom line by earning $4.10 versus $3.80 in the prior year. This year, the market expects an improvement in earnings ($4.30 versus $4.10).
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • Net operating cash flow has slightly increased to $279.73 million or 1.77% when compared to the same quarter last year. Despite an increase in cash flow, TORCHMARK CORP's cash flow growth rate is still lower than the industry average growth rate of 21.99%.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 9.4%. Since the same quarter one year prior, revenues slightly dropped by 0.2%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.

LNC ChartLNC data by YCharts
1. Lincoln National Corporation (LNC)

Rating: Buy, A
Market Cap: $15.4 billion
Year-to-date return: 5.4%

Lincoln National Corporation, through its subsidiaries, engages in multiple insurance and retirement businesses in the United States. It operates through Annuities, Retirement Plan Services, Life Insurance, and Group Protection segments.

"We rate LINCOLN NATIONAL CORP (LNC) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, attractive valuation levels, solid stock price performance, good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. We feel its strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 9.4%. Since the same quarter one year prior, revenues slightly increased by 4.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • LINCOLN NATIONAL CORP' earnings per share from the most recent quarter came in slightly below the year earlier quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, LINCOLN NATIONAL CORP increased its bottom line by earning $5.66 versus $4.53 in the prior year. This year, the market expects an improvement in earnings ($6.10 versus $5.66).
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • Net operating cash flow has increased to $296.00 million or 12.54% when compared to the same quarter last year. Despite an increase in cash flow, LINCOLN NATIONAL CORP's average is still marginally south of the industry average growth rate of 21.99%.

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