A Democratic victory in the November presidential elections may result in a boost to Medicaid managed care companies, says Thomas Carroll, Managing Director at Stifel, Nicolaus & Co., Inc. He says a Barack Obama victory is expected to translate into an Affordable Care Act rollout with expansion of Medicaid.
“I don’t want to be too bullish in terms of about an election trade, if you will, but I would look to Medicaid managed care companies before the election,” Carroll said. “If Obama wins, and everyone expects the ACA to roll out, expectations will be for an expansion of Medicaid, and over the last two years or so, whenever there’s been chatter that, the Medicaid companies have done well.”
Carroll’s favorite way to play is WellCare Health Plans (WCG) ahead of the election and ahead of third-quarter earnings. “We [are] recommending WellCare, a large Medicaid- and Medicare-focused specialty managed company. Medicaid and Medicare are poised to grow over the next five years, and migrating those populations over to managed programs, where a single company like WellCare takes the risk, should help to lower expenditures and keep some of the spread.”
The expansion of health care attracts Carroll to UnitedHealth Group (UNH) and WellPoint (WLP). “We do know health care is only getting bigger in the next decade, and I think United is going to do very well in that environment. It’s trading at about nine times forward earnings,” he said, and he adds “I also like WellPoint. There is a lot more hair on the story, and it’s trading about seven times forward earnings. If Obama is re-elected, and we do have more visibility, investors may look for a little more risk in the space. Why not buy WellPoint at seven times with the potential for a little more upside movement than a United?”
On the larger-cap side, Carroll favors Humana (HUM). “One of the challenges on Humana is going to be 2014, when the Medicare companies are subject to an 85% minimum medical loss ratio. Humana has a little work to do there — not a lot, but still somewhat of a risk going forward. The demographics of the world certainly favor more and quicker adoption of private-sector solutions in order to gain your Medicare entitlement benefits,” he said.
Obama Victory Stock Picks: Health Care IT; WellCare Health Plans (WCG), Humana (HUM), Accuray (ARAY)
November 07, 2012
Humana [NYSE:HUM] Proves that Obamacare Can Be Profitable
November 25, 2013
Humana, Inc. (HUM) To Return Free Cash Flow To Investors By 2015
December 13, 2013
Baker Hughes Incorporated (NYSE:BHI) in a Win-Win Situation
March 07, 2016
Health Care REITs Benefit from Strong Balance Sheets, Lower Cost of Capital
August 10, 2012
