Obamacare Stock Pick: A Wall Street Transcript Interview with Willem Schilpzand, an Associate Portfolio Manager and Analyst at Alpine Capital Research

Wall Street Transcript

67 WALL STREET, New York - November 25, 2013 - The Wall Street Transcript has just published its current Investing Strategies Report. This special feature contains expert industry commentary through in-depth interviews with highly experienced Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Large-Cap, Deep-Value - Bottom-Up Stock Selection - Repurchase Activity - Value Oriented Strategy - Investment Risk Management Strategies - High-Quality Blue-Chip Companies - Free Cash Flow Yield - Alternative Investing, Ultimate Returns

Companies include: Humana Inc. (HUM), Unitedhealth Group, Inc. (UNH), Intel Corporation (INTC), Microsoft Corporation (MSFT), Google Inc. (GOOG), Taiwan Semiconductor Manufactu (TSM), Berkshire Hathaway Inc. (BRK-A) and many others.

In the following excerpt from the Investing Strategies Report, an experienced portfolio manager discusses his methodology and top picks for investors:

TWST: Can you give us three examples of stocks that match your criteria and tell us what attracted you to each name?

Mr. Schilpzand: One of the stocks that we are currently still buying is Humana (HUM). Humana is a managed care organization, and their largest business is in the Medicare Advantage space, which is the private equivalent of government-provided original Medicare. Humana is the second-largest Medicare Advantage player with approximately 17% market share, and UnitedHealthcare (UNH) is the largest with approximately 20% share. The industry is becoming increasingly concentrated, and scale is a large factor in success.

We initially became interested in the managed care space due to the overall negativity surrounding the industry and the drop in share prices in mid-2012. The market appeared concerned about the new Affordable Care Act's impact on managed care in general and on Medicare specifically.

The U.S. government has promised significant entitlements benefits for Social Security, Medicare and Medicaid, and the market was rightfully concerned about the sustainability of the expenditure growth rates in those programs. While we acknowledged that several tough years were ahead for Humana, through our research we came to believe that Humana would not only survive in an environment with reimbursement cuts and higher levels of scrutiny but could potentially thrive.

Finally in January 2013, we got the opportunity to invest in Humana at what we believe were/are attractive price levels. Our thesis for Humana was and is that Humana's Medicare Advantage plans are sustainable products, as they provide cost savings versus the government-provided original Medicare plans; Humana's Medicare Advantage plans are relatively more attractive to potential new Medicare members than original Medicare plans; Medicare has secular demographic tailwinds; Humana is underleveraged; and finally, HUM's capital allocation policies should reward investors while we wait for the Medicare Advantage headwinds to pass.

To quickly elaborate on each thesis point, Humana's Medicare Advantage HMO plans provide a 30% savings versus original Medicare, and Humana's plans on average save close to 17% versus original Medicare. Savings are accomplished through narrower networks and more integrated care, which a government entity would have a very hard time replicating...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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