Barack Obama’s re-election on Tuesday may shift investor interest toward health care stocks levered to the Affordable Care Act and the expected expansion of health care by 30 million more U.S. citizens, which may result in hospital and physician practices being open to additional capital expenditures for medical equipment.
In a recent interview, Thomas Carroll, Managing Director at Stifel, Nicolaus & Co., Inc. shared this favorite health care IT plays in the scenario of a Democratic victory in the presidential race and expansion of Medicaid.
Carroll’s favorite play is WellCare Health Plans (WCG). “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.”
Carroll favors larger-cap 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.
On the hardware side of medicine, Steve Wilson, Chief Investment Officer and Analyst/Manager for Lapides Asset Management LLC, chooses Accuray (ARAY) as one of his favorite investment ideas. In a recent pre-election interview, Wilson described ARAY’s innovation, treatment efficacy and competitive dynamics among peers.
“What attracts me to this specific company is three things. One is they are in a very favorable, favorable growth area. The unfortunate reality is there will be an increasing number of people with these diagnoses,” Wilson said. Second is the radiosurgery aspect, a procedure with is less invasive than a mix of chemotherapy with traditional surgery, and which has equivalent efficacy. Thirdly, he says, the industry is consolidated.
“Last year, Accuray was digesting one of those acquisitions that are part of that consolidation trend. It set them back financially. They have now passed the anniversary point, they have turned the corner, and that’s why we’ve increased significantly our commitment to the company recently,” Wilson said.
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