How Healthy is Healthcare
Cory is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It’s an election year, so naturally the economy is going to be one of the most prominent issues in the mainstream media over the next 4 months. And with that comes discussions of the biggest economic issues – and presuming you haven’t been living under a rock this year, you already know that one of those issues is going to be Healthcare.
Suffice to say, we should be wary of how news about these issues (namely Healthcare) will affect the performance of stocks in those sectors. On Thursday June 28, we saw what has been touted as a landmark ruling for the Roberts Court in upholding the ACA (Affordable Care Act). The ramifications of this ruling were far and wide – especially since it was very unclear which way the Court would rule, and very little anticipation had been priced into the market.
Initial sell-offs commenced for the major public managed care stocks WellPoint (NYSE: WLP), and Cigna (NYSE: CI) to name a few, as Cigna is down nearly 10% since the ruling and WellPoint is down over 20% (source: Yahoo Finance). A portion of these drops is also due to the Humana (NYSE: HUM) report, which (released on Tuesday) cut its 2012 earnings forecast. Humana lost about 12% on the day, and its impact was felt throughout the sector. But it is important to keep a long-term perspective on these companies, and look at how the ACA, and their fundamentals as a whole will pan out over the long term.
One important thing to keep in mind is the stability that comes with this ruling. With this, we – as investors, can get an idea of how this market is going to play out over the next number of years. Companies like Cigna have less exposure to the ACA, whereas WellPoint, and others focused on individual and employer-provided plans are going to have higher risk due to fees and restrictions imposed by the law.
There are variables outside of the ACA that are in play here as well. Expenses are being driven up by care prices, making profitability increasingly difficult across the board. Overseas enrollments are going to become more important if domestic performance continues to perform in a lull. Enrollment, domestically speaking, has become more and more difficult to come by, and it is hard to say how much of an impact that ACA will have on this for WellPoint and Cigna.
Cigna announced earlier in July, a joint venture with Finansbank – a privately owned Turkish bank. This will greatly increase Cigna’s overseas market exposure in what is currently one of Europe’s least penetrated markets. This will allow Cigna to offset its exposure to ACA and any unwelcomed regulations that are brought forth.
Moving forward, I believe that Cigna has a strong potential to rebound from recent sell-offs, at least quicker than some of its contemporaries. Combined with its recent overseas acquisition and a solid management structure, it will be my first move into the Healthcare sector, should I make one.
coryjez has no positions in the stocks mentioned above. The Motley Fool owns shares of WellPoint. Motley Fool newsletter services recommend WellPoint. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.