Top Healthcare Stocks Fueled by Obamacare
The Affordable Care Act, otherwise known as Obamacare, has received mixed reviews and is being heavily fought against by the GOP. While the politics surrounding the movement loom large and are likely to be ongoing, there's also a lot at stake for investors. (For more, see: Obamacare: Can It Be Repealed?)
Obamacare, with all its loopholes and tiers, is complicated. Essentially, though, more people in the U.S. have health insurance today because of it. This has led to increased revenue and profits for health insurance companies and owners of large hospital networks. Profits for health insurance companies aren't as high on the new consumers, but that's made up for with increased volume. (For related reading, see: Obamacare Penalty Enforcement: How it Works.)
The big 5 health insurers — UnitedHealth Group Inc. (UNH), Aetna Inc. (AET), Cigna Corp. (CI), Humana Inc. (HUM), and Anthem, Inc. (ANTM) — have all been crushing the market over the past year, and there's no reason to think this will change any time soon. Keep in mind that crushing the market is a relative phrase; we're not talking about 1999 dot com gains, but these stocks are seeing appreciation of somewhere between 50% and 70%, which any sane investor would be thrilled to achieve over a one-year time frame, especially when it comes with a small dividend payment and when the broader market has been volatile. (For more, see: Top Healthcare Stocks of 2015.)
Additionally, since these five companies are in good fiscal health, the dividends are sustainable — and they have a good chance to grow.
Here are the numbers — in billions — as of June 4, 2015.UnitedHealth Group
UNH has appreciated 45.94% over the past twelve months and it currently yields 1.30%. UnitedHealth Group has a debt-to-equity ratio of 0.55. Revenue has consistently increased over the past three years and profits have been consistent. (For more, see: How UNH Makes Money.)
AET has appreciated 45.94% over the past twelve months and it currently yields 0.90%. Aetna has a debt-to-equity ratio of 0.60. Revenue and net income results for the past three years: (For more, see: Aetna vs. Cigna Health.)
CI has appreciated 52.43% over the past twelve months. Noticing a trend? This is one example of how the importance of industry trends can outweigh the importance of a specific company's performance. But going with the best of breed in an industry is always wise. It might not lead to the most upside potential during the good times — higher returns usually come via smaller companies — but it will offer the most downside protection.
Cigna has a debt-to-equity ratio of 0.55. Revenue and net income performance over the past three years:
HUM has appreciated 68.54% over the past twelve months and it currently yields 0.50%. Humana has a debt-to-equity ratio of 0.41. Revenue and net income performance over the past three years:
ANTM has appreciated 48.99% over the past twelve months and it currently yields 1.50%. Anthem has a debt-to-equity ratio of 0.73. Revenue and net income performance over the past three years:
$2.57Big 3 Hospital Owners
More investing options can be found via another sector of the healthcare industry — hospital firms, which have also been performing well.
Revenue Growth (3 Years)
Net Income Growth (3 Years)
HCA Holdings Inc. (HCA)
Universal Health Services Inc. (UHS)
Community Health Systems Inc. (CYH)
NThe ETF Path
If you want exposure to the industry without picking individual stocks, the Health Care Select Sector SPDR ETF (XLV) tracks it. It has appreciated 24.39% over the past twelve months and currently yields 1.29%. It also has a very low expense ratio of 0.15%.The Bottom Line
There aren't any poor performers in the list above. That's actually a negative, indicating the industry is in bull mode. But it's still a place you should consider investing in, doing your own research to find the best possible entry point. (For more, see: Healthcare Stocks: Prescription for More Gains?)
Dan Moskowitz does not own shares in any of the stocks or ETF mentioned above.