Obamacare delay is good for health stocks
The extra time allows businesses and providers to better manage the costs of the Affordable Care Act.
On July 3 we learned that the implementation of an important component of the Affordable Care Act would be delayed one year to January 2015.
Under Obamacare, employers with more than 50 employees were mandated to provide health care coverage by January 2014, or pay a fine based upon the number of employees. The delay of one year caused health maintenance stocks to drift lower until recovering with the stock market on Friday and Monday.
In my judgment, however, this one year delay may be beneficial to both employers and the health care companies as it gives them the time to work on new more affordable health plans and avoid the pending penalties.
Providing health care benefits should be considered a cost of doing business, and if these costs can be better managed between businesses and providers, companies can strategize on their business plans rather than avoiding the mandate. This delay provides a window of opportunity for additional economic growth.
On April 3 I wrote on TheStreet, Health Insurers Gain On Medicare Advantage, in which I profiled eight health maintenance stocks. Four were rated "buy" and four were rated "hold." Only three had performed positively over the last 12 months at that time. Since this post Coventry Health was acquired by Aetna (AET), so today's table of health care stocks totals seven companies.
ValuEngine shows that the medical industry is 19.3% overvalued with the health maintenance industry 12.2% overvalued. I continue to give the medical sector an equal-weight asset allocation rating.
In today's table note that only one out of seven are undervalued and that only one has a "buy" rating. The performance for these stocks improved significantly since April 3 with six of seven showing gains over the last 12 months between 10.4% and 66.3%. These stocks report their quarterly earnings reports between July 18 and August 7.
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 ($63.26 vs. $54.30 on April 3): Set a multi-year high at $64.22 on July 1 before the Obamacare delay was announced. My annual value level is $62.77 and a monthly pivot at $63.19.
Centene (CNC) ($54.49 vs. $44.57 on April 3): Set a new multi-year high at $54.63 on Monday and has been downgraded to hold from buy. My semiannual value level is $50.96 with a monthly risky level at $54.85.
Health Net (HNT) ($32.07 vs. $29.12 on April 3): Has been moving sideways since setting its 2013 high at $33.30 on April 29. My quarterly value level is $25.06 with an annual pivot at $32.54 and annual risky level at $35.35.
Humana (HUM) ($84.27 vs. $79.11 on April 3): Has been upgraded to "buy" from "hold" since April 3. My quarterly value level is $76.55 with an annual risky level at $89.78.
UnitedHealth Group (UNH) ($67.56 vs. $61.74 on April 3): Set a new multi-year high at $67.58 on Monday and has been downgraded to "hold" from "buy." My semiannual value level is $62.39 with a semiannual risky level at $73.01.
WellCare Health Plans (WCG) ($57.86 vs. $62.57 on April 3): Moved back above its 50-day and 200-day SMAs at $54.46 and $53.59 on June 27. The stock has been downgraded to "hold" from buy. My weekly value level is $50.66 with a quarterly pivot at $57.40 and monthly risky level at $60.04.
Wellpoint (WLP) ($83.09 vs $68.46 on April 3): Set a multi-year high at $83.16 on Monday and has been downgraded to hold from "buy." My monthly value level is $77.28 with a semiannual pivot at $81.89 and semiannual risky level at $83.77.
At the time of publication the author held no positions in any of the stocks mentioned.
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