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10 Healthcare Stocks Beating the Pack

Written By Briton Ryle

Posted November 11, 2014

When is 9 million people not a lot?

When you were expecting 13 million, of course.

Despite a successful 2014 in which some 7.5 million Americans signed up for private health insurance plans at the government’s medical insurance exchanges, enrolment for 2015 coverage is expected to fall short of the Congressional Budget Office’s projections.

Where the government anticipated having some 13 million Americans signed up for private health insurance for 2015 coverage, the expected torrent is being downgraded to just a trickle, with estimates now assuming between 9.1 and 9.9 million people will be receiving private coverage from the exchanges in 2015.

“The Open Enrollment period for 2015 coverage is November 15, 2014 to February 15, 2015. If you haven’t enrolled in coverage by then, you generally can’t buy Marketplace health coverage for 2015 until the next Open Enrollment period for coverage the following year,” cautions

Though the enrolment period has not yet opened, “Administration officials said they were basing the new targets on observations from the first enrollment window, which ended in mid-April. They also said that participation in other health programs aimed at a broad population suggested that enrollment under the new health law would be slower than the CBO assumed,” reports the Wall Street Journal.

What does this mean for the spectrum of stocks from health insurers to health services providers to health record systems technology developers? Many of them have been soaring over the past several quarters as 7.5 million new medical insurance recipients created something of an “insurance-boomer bulge” which has pulsed its way through the heathcare sector. Might the lower projected enrolee numbers deflate these stocks as investors scale back their earnings expectations?

Not a chance. That the private insurance exchanges will not be reaching their projected 13 million enrolees for 2015 coverage does not mean fewer Americans are receiving medical coverage.

“Officials also say that the CBO had assumed more people would lose employer coverage and wind up using the exchanges, and that hasn’t turned out to be the case,” the WSJ explains.

The 4 million enrolee shortfall that is “missing” from private insurance plans are not out of the medical insurance system all together, but are simply getting their medical coverage through their employers (most of them, anyway).

Remember that companies with 50 employees or more are obliged to provide their employees with medical coverage through company plans. Individuals have the option of leaving their employer’s plans and signing up for their own private plans through the exchanges if they wish.

It would seem, then, that most of that 4 million enrolee shortfall is from Americans choosing to remain on their employers’ plans. As such, they are still receiving coverage, just not through the private exchanges.

This means the stellar performance of healthcare insurance related stocks should continue to grow over the coming years as more Americans obtain medical coverage through either their own personal plans or their employers’ plans. And as more people enrol, more people will be taking advantage of the benefits afforded them by their plans, resulting in more visitations to clinics and doctors’ offices, more medical procedures and hospitalizations, more medical drug prescriptions, and of course more record keeping – just some of the related health care industries that will continue benefitting form the still growing enrolment in medical insurance plans.

Here is a short list of the top five U.S. companies in just two such industries that are expected to continue benefitting as millions more Americans obtain medical health insurance, whether privately or through their employers.

The Health Care Plans Industry

Obviously, the first industry to benefit from the surge of millions of new medical insurance enrolees is the Health Care Plans industry.

“Health care plan companies offer health benefit plans to employers and individuals. These include health plans for those who require long-term care or specialty benefits, along with point-of-service plans, traditional indemnity plans, and other hybrid plans,” describes the industry.

The top five U.S. companies by market cap in the industry and their percentage gains since the economic recovery began in March of 2009 are listed as follows, with accompanying graph comparing them to the S&P 500 index (black) which gained some 200% over the period:

• UnitedHealth Group Incorporated (NYSE: UNH), $93.0 billion, up 425% (blue)

• WellPoint Inc. (NYSE: WLP), $33.9 billion, up 300% (orange)

• Aetna Inc. (NYSE: AET), $29.6 billion, up 300% (yellow)

• CVS Health Corporation (NYSE: CVS), $103.5 billion, up 270% (beige)

• Express Scripts Holding Company (NASDAQ: ESRX), $57.2 billion, up 240% (purple)

How are they expected to perform going forward? Very well indeed, with 2015 earnings growth projected as follows:

• CVS = 13.8%, ESRX = 11.7%, UNH = 8.7%, AET = 7.0%, and WLP = 6.2%.

healthcare stocks chart 1


Hospitals Industry

Another industry expected to benefit from the surge in new medical coverage recipients is the hospitals industry, although it encompasses more than just hospitals, as describes:

“Hospitals engage in providing medical, diagnostics, and treatment services to those in need. These companies can operate a variety of health care facilities such as specialized care, surgery, and emergency centers.”

Among the many types of facilities owned by companies in the industry are: hospitals, emergency rooms, surgery centers, diagnostic and imaging centers, radiation and oncology therapy centers, rehabilitation and physical therapy centers, behavioral health centers, general and specialty surgery, critical care, obstetrics, skilled nursing and home care services.

The top five U.S. companies in the industry, their market caps and changes since the economic recovery began are listed as follows, with accompanying graph.

• Tenet Healthcare Corp. (NYSE: THC), $4.7 billion, up 1,230% (orange)

• Universal Health Services Inc. (NYSE: UHS), $9.7 billion, 540% (blue)

• Community Health Systems, Inc. (NYSE: CYH), $5.4 billion, up 280% (purple)

• Lifepoint Hospitals Inc. (NASDAQ: LPNT), $3.0 billion, up 280% (yellow)

• HCA Holdings, Inc. (NYSE: HCA), $29.4 billion, up 110% (beige)

Healthcare stocks chart 2


How are these hospital industry companies anticipated to perform going forward? Even better than the health care plans companies, as their projected 2015 earnings growth rates show:

• THC = 69.2%, CYH = 24.0%, LPTN = 16.4%, UHS = 12.2%, and HCA = 11.3%.

Just remember that these are earnings growth forecasts, not stock price appreciation targets. Even so, investors will jump into the stocks with the better earnings growth. Hence, we should expect these stocks to continue outperforming the broader market S&P and even other health care industry favorites.

Even if the government isn’t getting all the new medical insurance enrolees it had expected, at least the companies related to the space have received the anticipated investor participation, while investors’ portfolios have received a little tender-loving-care of their own.

Joseph Cafariello