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5 Stocks to Buy for the Post-Obamacare Era

Swarup Gupta

Last Wednesday, President Trump reiterated his commitment to replace the Affordable Care Act with new healthcare legislation. But even as Trump prepares to repeal the last administration’s signature reform, support for Obamacare is growing. Recent polls have found that more Americans approve of the healthcare law than ever before.

At this point, the exact nature of the new legislation remains unclear. However, after an initial hiccup, healthcare stocks have prospered under the Trump administration up to now. With concerns about exorbitant drug prices refusing to die down, investors would do well to look at stocks from those industries which are key stakeholders of the healthcare law and possess strong fundamentals.

Healthcare Gains Under Trump

By now, the fact that healthcare sector gained under Obamacare is beyond dispute. The Healthcare Select Sector SPDR has increased more than 130% since the ACA became law in Mar 2010, easily exceeding the S&P 500’s return over the same period. And despite the urgency to replace the legislation, the sector has gained 9.7% since Trump’s surprise victory.

Earlier this month, the Trump administration moved to reduce the enrollment period for the ACA. This could actually help to get more individuals to sign up for coverage, which is good news for insurers. The likes of Aetna Inc. AET and Humana Inc. HUM have suffered because of Obamacare, since a large number of individuals with serious illnesses have chosen to opt for healthcare cover. In contrast, not enough young, healthy individuals have enrolled which is essential for costs to even out.  

Insurers Likely to Benefit

In fact, Humana has said recently that it will exit ACA exchanges by 2017. Meanwhile, several key mergers have failed to go through, dealing a further blow to the sector. At the same time, nearly all major healthcare insurers have gained substantially since the presidential election.

It is being widely believed that a new set of streamlined rules will hugely benefit insurers. This will allow such companies to become more flexible in their approach, which will help in attracting younger individuals. Also, the Medicare business continues to expand 

Will Hospital Stocks Suffer?

One of the biggest winners under Obamacare was the hospitals industry. Under the ACA, the sector began to get paid for several services which they would earlier have to provide free of charge. However, in a post-ACA scenario, several individuals would lose their healthcare coverage, a concern raised even by such prominent Republicans as Ohio Governor John Kasich. This means that hospitals would again have to face a scenario where they wouldn’t get paid for several services.

But the threat to the Hospitals stocks seems to have been overestimated. Shares of the likes of LifePoint Health, Inc. LPNT and Tenet Healthcare Corp. THC have gained 12.9% and 48.2%, respectively year to date. This is because the fear that the ACA would be abolished without a replacement has proven to be unfounded. And despite Trump’s recent statements, a farewell to Obamacare doesn’t seem to be in the offing in the near future. Currently, key Republicans and even the White House itself have widely differing opinions on the issue.

Our Choices

Statements from the President and the White House notwithstanding, a quick replacement to the ACA seems to be an unlikely possibility at this time. Even if this does happen individually, certain sectors such as insurance are slated to gain. Still others like hospitals may not drop drastically as was envisioned earlier.

Then again, there is the burgeoning healthcare services sector which may remain largely unaffected by these events. Insurers, hospitals and healthcare service providers with strong fundamentals would make welcome additions to your portfolio in such a scenario.

We have narrowed down our search to the following stocks based on a good Zacks Rank and other relevant metrics.

BioTelemetry, Inc. BEAT offers cardiac monitoring, device manufacturing and cardiac core laboratory services.

BioTelemetry’s expected earnings growth for the current year is 10%. Its earnings estimate for the current year has improved by 1.9% over the last 30 days. The stock has returned 43.1% over the last six months, outperforming the Zacks Medical Services sector, which has gained 3.5% over the same period. The stock has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

WellCare Health Plans, Inc. WCG is a leading managed care company. It primarily focuses on providing government-sponsored managed care services.

WellCare Health Plans has a Zacks Rank #2 (Buy). The company has expected earnings growth of 7.2% for the current year. Its earnings estimate for the current year has improved by 3.9% over the last 30 days. The stock has returned 23.9% over the last six months, outperforming the Zacks Medical - HMOs  sector, which has gained 18.1% over the same period.

The Joint Corp. JYNT is a healthcare franchisor of chiropractic clinics. The Company's plans include: Single Visit, Premium Wellness Plan and Wellness Plan. It also provides a family wellness plan.

The Joint Corp. has a Zacks Rank #2. The company has expected earnings growth of 78.5% for the current year. Its earnings estimate for the current year has improved by 20% over the last 30 days. The stock has returned 39.3% over the last six months, outperforming the Zacks Medical - HMOs  sector, which has gained 18.1% over the same period.

HCA Holdings, Inc. HCA is the largest non-governmental operator of acute care hospitals in the U.S.

HCA Holdings has a Zacks Rank #2. The company has expected earnings growth of 7.8% for the current year. Its earnings estimate for the current year has improved by 3.4% over the last 30 days. The stock has returned 16.2% over the last six months, outperforming the Zacks Medical - Hospital sector, which has gained 9.2% over the same period.

Chemed Corp. CHE purchases, operates and divests subsidiaries engaged in diverse business activities. Its VITAS Healthcare segment provides hospice and palliative care services for patients with terminal illnesses.

Chemed has a Zacks Rank #2. The company has expected earnings growth of 14.3% for the current year. Its earnings estimate for the current year has improved by 0.6% over the last 30 days. The stock has returned 35% over the last six months, outperforming the Zacks Medical - Outpatient and Home Healthcare sector, which has gained 16.7% over the same period.

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BioTelemetry, Inc. (BEAT): Free Stock Analysis Report
 
Aetna Inc. (AET): Free Stock Analysis Report
 
Humana Inc. (HUM): Free Stock Analysis Report
 
WellCare Health Plans, Inc. (WCG): Free Stock Analysis Report
 
Tenet Healthcare Corporation (THC): Free Stock Analysis Report
 
LifePoint Health, Inc. (LPNT): Free Stock Analysis Report
 
HCA Holdings, Inc. (HCA): Free Stock Analysis Report
 
Chemed Corp. (CHE): Free Stock Analysis Report
 
The Joint Corp. (JYNT): Free Stock Analysis Report
 
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