Healthcare has been one of the hottest sectors over the last five years. Once Obama Care was put in place, companies positioned themselves to be the benefactors of the new age of health care.
Years later, the HMO part of the sector sports a Zacks Industry Rank of 25 out of 265 (Top9%). Over the last two years, the ETF iShares US Healthcare Providers (NYSEARCA:IHF) has continued to outperform the major indices and should be a leader in the future. Now that the market has somewhat stabilized, it's time to start looking at the HMO stocks that will do well for the rest of 2016.
Magellan Health (NASDAQ:MGLN) is a Zacks Rank #1(Strong Buy) that engages in the healthcare management business. The company is the country's leading behavioral managed care organization whose customers include health plans, corporations and government agencies.
Magellan has a market cap of $1.42 Billion with a Forward P/E of 19. The stock sports a Zacks Style Score of "A" in Value.
While Magellan has underperformed over the last couple years, there are reasons to believe the stock will pick up in the near future. Over the last 90 days, earnings estimates have been revised 38% higher for the current quarter and 126% for fiscal year 2016. If these high expectations are met, the stock should push back towards December highs.
Magellan has had a volatile earnings history, beating and missing big on EPS over the past couple years. They report on February 29th with the Zacks consensus estimate at $0.72.
Triple-S Management (NYSE:GTS) is a Zacks Rank #1(Strong Buy) that provides various managed care and related products in the commercial and Medicare markets in Puerto Rico, serving approximately one million members across all regions. The company is an independent licensee of the Blue Cross Blue Shield Association that offers a broad portfolio of managed care and related products in the commercial, Medicare and Reform markets.
GTS has a market cap of $640 Million and a Forward P/E of 18. It offers no dividend, but the stock sports Zacks Styles Scores of "A" in Value, Growth, and Momentum.
The company reported a solid beat on earnings on February 18th, which pushed the stock over 25% higher. Q4 came in at $0.57 versus the $0.25 expected, with revenues coming in at $773.9 Million versus the $7.66 Million expected.
Newly named CEO Roberto Garcia-Rodriguez went on to comment on the conference call: "The results of our Managed Care operation improved significantly in the fourth quarter, reflecting seasonal strength and sustained progress with the strategic transformation initiatives we launched last year, aimed at creating organizational agility and functional excellence. Our primary operational focus was to enhance the performance of our Medicare segment and we are pleased with the outcome to date. Having consolidated leadership within our Managed Care segment, we expect to generate additional synergies in 2016. On the Commercial front, we have maintained our underwriting discipline in what remains a stressed market. Medicaid is profitable and tracking our expectations."
The move after earnings was a combination of a great quarter, recent selling because of Puerto Rico fiscal issues and a large short interest in the stock. The short sellers are in danger at the moment, with over 16% of the float short and a short ratio of 12. Any pullback on the stock should be looked at as an opportunity as the stock continues to put a squeeze on the shorts.
Molina Healthcare (NYSE:MOH) is a Zacks Rank #2(Buy) that provides Medicaid-related solutions to meet the health care needs of low-income families and individuals; and to assist state agencies in their administration of the Medicaid program. It currently operates health plans in California, Washington, Michigan and Utah.
Molina has a market cap of $3.4 Billion and a Forward P/E of 15. It pays no dividend, but the stock sports Zacks Styles Scores of "A" in Value and Growth.
On February 11th Molina guided fiscal year 2016 at $3.86, 5.5% higher than the $3.61 expected. Since the guidance the stock is up over 20%, gaining back much of 2016 losses. Any pullback should be considered an opportunity for entry into the stock, as estimates continue to rise. Over the last month, 2017 earnings estimates have been revised 4.2% higher from $4.46 to $4.65.
UnitedHealth Group (NYSE:UNH) is a Zacks Rank #2(Buy) that operates as a diversified health and well-being company in the United States. United offers health care coverage and related services to help people achieve improved health and well-being through all stages of life.
The company has a market cap of $112 Billion and a Forward P/E of 15. It pays a dividend of 1.7% and sports Zacks Styles Scores of "A" in Value.
UnitedHealth reported in mid-January, beating on both the top and bottom line. Since then, the stock is up over 11%. The company's next earnings report will be April 21st and if it's anything like the last five years they will have another EPS surprise to the upside.
Centene (NYSE:CNC) is a Zacks Rank #2(Buy) that provides managed care programs and related services to individuals receiving benefits under Medicaid, including Supplemental Security Income, and the State Children's Health Insurance Program.
The company has a market cap of $7 Billion and a Forward P/E of 13. It pays no dividend and sports Zacks Styles Scores of "A" in Value Growth and Momentum.
Centene reported in late January, beating on both the top and bottom line. The company affirmed fiscal year 2016 at $4.10-$4.49 versus the $3.93 expected and put revenue at $41.2-$42.0 Billion versus the $26.1 Billion expected.
Over the last 90 days, earnings estimates have been revised significantly higher. For fiscal year 2016, revisions have pushed 25% higher from $3.35 a share to $4.20. For 2017, we see a 23% move higher, from $3.96 to $4.88.
Healthcare stocks need to be part of a diversified portfolio. Over the last five years, these stocks have performed very well and should continue to do so. There is election risk if a Republican were to take the white house, as uncertainty among new government policies would hurt the stocks. However, if the current system stays in place, these companies have positioned themselves well.