Election-Year Jitters Put United and Other Health Plan Stocks on Sale

Owning healthcare stocks in an election year, especially one in which universal healthcare has taken center stage on the Democratic agenda, is not surprisingly a wild ride. With less than six months to go until our country chooses its next president, near-term headline risk for healthcare stocks should stay elevated for a while. That said, some healthcare names, most notably the health insurance providers, have seen their share prices get beaten down to levels that can’t help but get value investors’ attention.

A perfect example is United Healthcare (UNH), one of the largest health insurance providers in the country. The combination of political risk and a recent acceleration in healthcare cost inflation have investors nervous. The stock has fallen from a high of more than $59 in December and hit a new 52 week low on Thursday, trading below $32 per share. This dramatic 45 percent decline leaves UNH trading at merely 9 times trailing earnings. Such a meager valuation indicates that Wall Street is genuinely concerned that a Democrat in the White House could cripple the fortunes of the HMO industry.

History has shown, however, that wide sweeping changes are rarely accomplished in Washington DC, especially when the issue is as complicated as the broken U.S. healthcare system. Even small, productive changes are difficult to attain when politicians and lobbyists are involved in decision making that is trying to make life better for the American electorate. In other words, using history as a guide seems to indicate the current pessimism on Wall Street regarding the HMO industry may prove to be overdone. The near term headlines could very well spook investors further as the election approaches, but getting arguably the best managed HMO company in the country for 9 times trailing earnings looks like it could turn out to be quite a bargain.

Don’t get me wrong, I would like to see transformative healthcare reform in this country as much as anyone. I simply don’t think the political environment as it stands currently has a very high probably of accomplishing such a magnificent feat.

Disclosure: Long shares of United Healthcare at the time of writing

Comments

[bearfund]

Positive change is hard. Destructive change is one of the few things the government does well. I'm staying away. Good luck to you, though. Your gain is everyone's gain.

[Whisper OnThe Wind]

If the Dems get in (and that's doubtful from my point of view), the only healthcare plans available will be the ones who spend all their profits lobbying congress, and they won't have any money. The rest will bite the dust. This leaves Tommy Taxpayer to foot the bills, even though no one seems to be saying this out loud. Healthcare stocks are losers right now.