Profit from a health care gatekeeper
There is money to be made by being the middleman in the health care industry.
First there is access to health care professionals like doctors, nurses and EMTs. You don't feel well or you're having some emergency issue and need to see a professional fast. In the U.S. we all seem to have initial access to these.
Anyone can call 911, go to an emergency room or get a sick-visit appointment with a doctor. If you are bleeding, having a heart attack or broken bones, you will be treated. After a doctor has examined you and determined that you are really sick is when the problems start.
After the doctor has seen you, you'll need access to labs, MRIs, CAT scans and all those diagnostic tests that are used to find out what's wrong and how to fix it. Here's where the gatekeepers come in.
After this point, your care will be determined by your ability to get the bills paid. If you don't have what President Obama terms a "Cadillac health plan," the tests you get may be prioritized not by your medical needs but your financial ability to pay. After your ailment is diagnosed, care boils down strictly to your ability to pay.
In the treatment phase, the money is where the rubber meets the road. So how can money be made?
Health care insurance and health care management are the gatekeepers between your ailment and your treatment, and Universal American (UAM) is involved in both. It offers all kinds of health insurance products mainly to the senior market, and both comprehensive co-payment and reimbursement insurance plans.
It also offers heath care management systems to other insurers, health care professionals and hospitals. I've read articles that claim over 20% of all health care costs are in these gatekeeping administrative areas, so we are talking big bucks here and I think they are poised to get more than their fair share of the market.
Analysts following this stock think there will be a 2.3% increase in sales next year and an 18.5% increase in earnings per share. The consensus is for an 8% EPS growth rate for at least the next five years. Positive sales and earnings growth is what we look for.
I think the stock is undervalued and it shows in the recent 65-day price appreciation of 63.8%. All 13 of Barchart's technical indicators signal buy for a 100% Barchart buy rating. The stock has had price appreciation in 14 of the last 20 trading sessions and was 4-for-5 recently.
On other sites, Wall Street Survivor readers give the stock a 5/5 Survivor Sentiment rating and Motley Fool members think the stock will outperform the market by a vote of 54 to 4. The All Stars confirm 26 to 1.
Recommendation: I recently sold Verizon (VZ) in my Wall Street Survivor portfolio due to deteriorating price performance and failure to maintain a price above its 50-day moving average.
Universal American is in the center of the health care market and has been having positive price appreciation recently plus positive sales and earnings projections. I'm adding it to my WSS portfolio around 14 and will use a moving protective stop loss no lower than 11.50.
I hold no positions in Universal American at the time of publication.
Jim Van Meerten is an investor who writes about financial matters here and on Financial Tides. Please leave a comment below or email JimVanMeerten@gmail.com
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