Obamacare: Three Firms That Will Do Well From the Affordable Care Act
Nate is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The Patient Protection and Affordable Care Act, or Obamacare, is beginning to be felt in the healthcare community. Health providers and insurance companies are starting to deal with the changes in our health system. How can you take advantage of it?
I'm not here to judge Obamacare. That's not my role. My job is to look into the future and provide some advice about how to invest your money wisely in the face of what's coming. I'm a retired investment advisor and a former political reporter. I think I speak nothing but the truth when I say that Obamacare is being implemented and nothing is going to change that. Therefore, you should be looking to take advantage of it.
Remember, there are two competing impulses in Obamacare. The first is to spread the penetration of health insurance to everyone in the United States. The second is to control the growth in the amount of money that Americans have to pay for health coverage. It's a tricky proposition, and one you should be on your toes about.
In the end, though, the way that Obamacare was designed leads me to believe that the very biggest healthcare providers will be the ones to do best during the next few years. These firms are best able to implement new ideas that spread risk and take advantage of their own financial muscle to keep their costs down while outside forces attempt to lower their margins. I wouldn't be surprised to see some of the small fry scooped up by the big players as things move forward. Every time there's been a time of shrinking margins one of two things happens: consolidation, and then a reaction as small firms innovate with game changers. There's no predicting the second so it's best to count on the first.
Here are a few firms I think will do well as Obamacare comes fully online:
HCA Holdings (NYSE: HCA)
HCA Holdings is one of the biggest hospital firms in the nation. The firm controls several hundred hospitals and surgery centers, as well as some other healthcare facilities. Given its sheer size, it should do well as Obamacare is implemented. By spreading its cost-saving capability around I expect steady growth for HCA, especially compared to the smaller firms in the market. As Obamacare approaches, the firm's stock has been a steady riser, going from $24.50 twelve months ago to $36.95 (At the close, Jan. 18, 2013). In addition, it's paid some special dividends over the last year in the $2 and $2.50 range. Those may be just in response to possible tax hikes, but some of them were many months ago. HCA is one to buy, hold and love.
Mednax (NYSE: MD)
Not a hospital firm, Mednax rather provides physician's services to hospitals and patients. A lot of the services provided are of the specialty nature, as well. With more than 1,800 doctors in the system, the firm provides high-quality medical care while also being actively looking to expand its role. In 2012, Mednax went on a bit of a buying binge, picking up five smaller anesthesia firms from May to December. Even with all the spending, the firm's stock has risen from $70.44 to $85.93 over the last year – almost a 22% gain. I'll take that. I think Mednax will come through the Obamacare changeover well, it's already thinking about it and taking action.
Tenet Healthcare (NYSE: THC)
Tenet owns healthcare facilities. The firm specializes in acute care, but not exclusively. It provides care to patients when they need it and when their insurance pays the most for it. The Dallas-based firm has more than 13,000 beds under its control and employs more than 50,000 workers. Tenet is another firm on an acquisitional streak as it has been, over the last two years, buying up smaller facilities and adding them to its network. Look for more of that as consolidation begins to truly take hold in the industry. The stocks firm did well in the last year, rising from $20.40 to $38.04 and splitting 2:1 in October. There are worse places to be invested. In addition, a P/E of 42.95 indicates that others think this'll go up, too.
Look, I know feelings run high about Obamacare. But no one makes more in the markets thinking with their political heart. To make a profit on equities you need to use your cold, analytical brain to take advantage of the situation as it stands, not as the pundits would heat you up. So take a deep breath, acknowledge what's happening in the world, and invest based on your head.
Follow Nate on Twitter: @natewooley
More columns by Nate Wooley:
- Gun Control's Impact on Your Portfolio
- Can Google, Microsoft Take Advantage of Apple's Fall?
- Dell, Hewlett-Packard and the Tough Times for PCs
Nate Wooley has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!