Why Aetna Shares Are Worth Buying Around $42

| About: Aetna, Inc. (AET)

Shares of Aetna (NYSE:AET) tumbled after the company reported earnings that missed expectations. Aetna is a leading healthcare benefits and insurance company. It offers medical, pharmacy benefit management, dental, behavioral health, and vision plans. It also offers life insurance and Medicare and Medicaid plans.

Given that Aetna is a well-diversified company that provides products and services in the healthcare sector, it makes sense to take a closer look at the stock -- especially after a sharp drop in the price. It looks like expectations were too high, which was possibly prompted by the fact that other companies in this sector recently reported better-than-expected earnings. Companies like Wellpoint (WLP) and United Health (NYSE:UNH) beat expectations and set the bar high for Aetna. The company reported a profit of $511 million, or $1.43 per share. This was below earnings of $586 million, or $1.50 per share, in the same quarter of 2011.

However, Aetna is a well-managed company and has a strong balance sheet. This stock is getting down to levels where it offers strong value for investors. Aetna shares have a 50-day moving average of $47.27, and the 200-day moving average is $41.88. With the earnings miss the company just experienced, and the market suffering from bouts of volatility, there is a good chance the stock will soon test the key support level of $41.88. After an earnings miss, stocks can take a few days before bottoming out. That's why it makes sense to wait for a buying opportunity in Aetna at around $42 or less.

Key Data Points For Aetna:

  • Current Price: $45.31
  • 52-Week Range: $33.43 to $51.14
  • Dividend: 70 cents annually, which yields 1.4%
  • 2012 Earnings Estimate: $5.15 per share
  • P/E Ratio: about 9 times earnings

Wellpoint is another leading provider of healthcare benefits and insurance products. This stock appears to have strong support right around $67 per share, and is worth considering on pullbacks to that level.

Key Data Points For Wellpoint:

  • Current Price: $69.35
  • 52-Week Range: $56.61 to $81.92
  • Dividend: $1.15 per share annually, which yields 1.6%
  • 2012 Earnings Estimate: $7.76 per share
  • P/E Ratio: about 9 times earnings

Data is sourced from Yahoo Finance.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: No guarantees or representations are made. Please consult a financial advisor before making investments.

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