Seeking Alpha
Research analyst, portfolio strategy, portfolio management
Profile| Send Message|
( followers)  

The clock is ticking and there are 2 more trading days before the most anticipated Supreme Court decision in a generation is delivered. According to all news reports, Thursday, June 29th, we will know what the Supreme Court has decided on The Affordable Care Act, or Obamacare.

I wrote this article suggesting 3 stocks I have been looking at for significant price appreciation:

  • Tenet Healthcare (NYSE:THC): Price: $4.80/share, ESS Rating: Neutral
  • WellPoint, Inc. (NYSE:WLP): Price: $69.46/share, Dividend Yield: 1.75%, ESS Rating: Bullish
  • Teva Pharmaceuticals (NYSE:TEVA): Price: $37.74/share, Dividend Yield: 2.25%, ESS Rating: Bullish

Each of these are positioned to offer investors significant rewards if the Supreme Court rules that most if not all of the law is Constitutional.

I have been also looking at some ETFs which can offer investors more diversity depending on the decision and the 3 that I believe are sound options to be considered are as follows:

Health Care Select Sector SPDR (NYSEARCA:XLV)

Health Care Select Sector SPDR (<a href='' title='Health Care Select Sect SPDR ETF'>XLV</a>)

From Yahoo! Finance:

Top 10 Holdings (59.24% of Total Assets)
CompanySymbol% Assets
Johnson & Johnson Common Stock(NYSE:JNJ)12.27
Pfizer, Inc. Common Stock(NYSE:PFE)11.80
Merck & Company, Inc. Common St(NYSE:MRK)8.19
Abbott Laboratories Common Stoc(NYSE:ABT)5.89
UnitedHealth Group Incorporated(NYSE:UNH)4.21
Bristol-Myers Squibb Company Co(NYSE:BMY)4.05
Amgen Inc.(NASDAQ:AMGN)3.94
Express Scripts Holding Company(NASDAQ:ESRX)3.14
Eli Lilly and Company Common St(NYSE:LLY)2.99
Medtronic Inc. Common Stock(NYSE:MDT)2.76

This ETF offers plenty of exposure to the finest names in the pharmaceutical sector and with virtually any ruling, I believe this ETF will surge in price.

I would also hedge any position with an ITM put option, which are available of course, and you just might be able to play both ends of any overreaction in either direction.

Vanguard Health Care ETF (NYSEARCA:VHT)

Vanguard Health Care ETF (<a href='' title='Vanguard Health Care ETF'>VHT</a>)

From Yahoo! Finance:

Top 10 Holdings (48.76% of Total Assets)
CompanySymbol% Assets
Johnson & Johnson Common StockJNJ10.20
Pfizer, Inc. Common StockPFE9.86
Merck & Company, Inc. Common StMRK6.63
Abbott Laboratories Common StocABT5.41
UnitedHealth Group IncorporatedUNH3.56
Bristol-Myers Squibb Company CoBMY3.24
Amgen Inc.AMGN3.06
Eli Lilly and Company Common StLLY2.38
Medtronic Inc. Common StockMDT2.34
Gilead Sciences, Inc.GILD2.08

With somewhat different allocations (in many of the same stocks by the way), this ETF is also well positioned for any event, and selecting this one is just as good as the others.

The same ITM put option strategy should be considered as well.

iShares Dow Jones US Healthcare (NYSEARCA:IYH)

iShares Dow Jones US Healthcare (<a href='' title='iShares U.S. Healthcare ETF'>IYH</a>)

From Yahoo! Finance:

Top 10 Holdings (55.69% of Total Assets)
CompanySymbol% Assets
Johnson & Johnson Common StockJNJ11.19
Pfizer, Inc. Common StockPFE11.02
Merck & Company, Inc. Common StMRK7.57
Abbott Laboratories Common StocABT6.30
Amgen Inc.AMGN3.99
UnitedHealth Group IncorporatedUNH3.93
Bristol-Myers Squibb Company CoBMY3.75
Express Scripts Holding CompanyESRX2.74
Eli Lilly and Company Common StLLY2.64
Medtronic Inc. Common StockMDT2.56

Obviously, this ETF has virtually the same top holdings as the other two I happen to like, with just slightly different allocations. This one would be just as viable as the others.

Again, an ITM put option hedge strategy should be considered here as well.

My Opinion

Any of the 3 ETFs I have mentioned will give the stakeholder a very complete and comprehensive diversity of stocks within the healthcare sector that would be the most obvious to gain from a ruling that keeps The Affordable Care Act virtually intact, with or without the "mandate" issue.

Not only that, but moving forward, even if the Court decides to toss the entire law out, the risk management teams of every company held by these ETFs in all likelihood have their contingency plans in place already. That would mean even if we need to go back to square one, healthcare diversity will continue to be a sound positioning in virtually any portfolio

Keep in mind that these ETFs have dividend yields of 1.60% to 2.01%. They have options available to write covered calls, as well as to sell puts, to add to or open positions, and with each option strategy to generate some cash flow as well. The fees associated with these ETFs are minimal and I like them much better than any healthcare sector mutual fund.

Source: 3 ETFs To Buy Now For A Positive Supreme Court Ruling On The Affordable Care Act