The ‘Trump trade’ divides healthcare stocks into two camps. How to take the next step | Wilnesh News
This year’s presidential election has already led to significant gains in health care stocks. Raymond James analyst Chris Meekins said in a July 7 report that historically, shifts in political control have led to “increased volatility” across the health care sector, prompting investors to “look for safety.” “This election could have very different, binary, opposing health policy outcomes depending on who wins.” As scrutiny of discount plans continues to increase, health insurance companies may be more sensitive than usual to this model. In fact, it’s already clear how managed care stocks are trading. Earlier this week, traders seemed to conclude that former U.S. President Donald Trump was building an unbeatable lead over Joe Biden. The incumbent president’s re-election campaign has struggled since Biden’s disastrous debate performance on June 27. Just look at how UnitedHealth Group’s stock has been trading amid these headlines to get a sense of the swing in market sentiment. The stock was underperforming the broader market as of Thursday’s close and is up 7% year to date. However, the stock has gained nearly 17% since the presidential debate. The stock hit a new 52-week high in Wednesday trading, but has been off its highs in recent sessions amid the potential for Biden to step down. In the past month, UNH Mountain United Health shares reached 1 million shares. Meekins noted that the broader healthcare industry is a defensive “late-cycle” group that typically struggles in election years and the year after an election, and historically outperforms the year after an election . Most health care industries also do “much better” when a Republican wins the presidency. The analyst said healthcare stocks as a whole have underperformed the broader market by about 19% during Biden’s presidency. What a Republican victory means Analysts expect Republican leadership will reduce regulatory scrutiny from the Federal Trade Commission and the Justice Department while still holding down drug prices. However, this could mean the end of expanded personal health care subsidies. That’s important because this benefit, established under the Affordable Care Act (ACA), or Obamacare, can reduce monthly premiums and out-of-pocket costs for low- and moderate-income individuals. The bill is due to expire at the end of 2025, and a Republican sweep ensures that. Raymond James’ Meekins said the end of subsidies could hurt hospitals and managed care companies by creating a flood of new uninsured people, leading to lower enrollment. On the other hand, analysts see a Trump victory as a positive for Medicare Advantage carriers. Think Centene, Molina Healthcare, UnitedHealth and Humana, among others. Medicare Advantage is a Medicare health plan offered by private insurance companies through an annual contract that typically provides the same coverage as original Medicare, but often with additional benefits such as vision and dental coverage. “The Trump administration will be more favorable from a rate perspective, which will help alleviate some of the cost issues that (Medicare Advantage carriers) are feeling and the pressure that they’re feeling on health care costs versus what they were before. The situation compares to what we’ve experienced so far under the Biden administration,” Meekins said. History bodes well for the group. Managed care companies have historically bucked the overall trend in health stocks and outperformed the market in the first year after an election, according to Raymond James. Analysts at several firms including Raymond James, Bernstein and RBC Capital Markets believe UnitedHealth, Humana and CVS Health will be Trump’s One of the biggest beneficiaries of the win. The recent gains by UnitedHealth, the largest private U.S. insurer, reflect more than just shifting political winds. Investor enthusiasm shifted as a strong second-quarter performance reignited confidence in the company’s prospects. Jefferies analyst David Windley praised the company’s efforts to cut costs, saying it could lead to an “excellent 25-year structure” for the stock. Windley believes a Trump win will lead to membership growth, with UnitedHealth appearing “best positioned to seize the full economic opportunity.” He has a buy rating on the stock with a price target of $647, which means the stock could rise nearly 15% from Thursday’s closing price. RBC Capital Markets analyst Ben Hendricks said UnitedHealth will see the most immediate benefit among managed care organizations under the Trump administration, as its Optum unit will benefit from a looser regulatory environment. Optum has helped the company generate record profits by providing a range of primary care, specialty and urgent care services to nearly 104 million consumers. In late February, the U.S. Department of Justice launched an antitrust investigation into the role of major conglomerates in rising health care costs. In addition to UnitedHealth and Humana, Raymond James analyst John Ransom also expects managed care provider Alignment Healthcare to benefit from a Republican sweep because, he said, All three companies have relatively high exposure to the Republican-favored Medicare Advantage plan and little or no exposure to the ACA. Humana shares are down more than 15% this year, but like UnitedHealth, they are up nearly 8% since the presidential debate. Piper Sandler first gave Humana an overweight rating and $392 price target on June 25, saying the company was “turning around” with the help of a new CEO and expected growth in the Medicare Advantage market. “We believe the HUM brand has a durable competitive moat… We believe the company’s purpose-built healthcare delivery and service infrastructure should, over time, improve outcomes and bend the cost curve through center-based home and pharmacy care Ransom said telemedicine and prescription drug provider GoodRx Holdings could also get a boost if a Republican sweep eliminates the Affordable Care Act’s enhanced subsidies, which has seen its stock rise more than 20% so far this year, he said. With millions of ACA members at risk of losing coverage, we believe GDRX may benefit as individuals increasingly seek prescription savings. What a Democratic victory means If Democrats overcome their recent struggles with Biden or other candidates, analysts believe managed care brands tied to the ACA and hospitals will be the winners. In that case, Bernstein analysts Lance Wilkes expects Centene to benefit as the largest Medicaid managed care organization. He rates the stock an outperform and is bullish on the stock with a $94 price target, indicating more than 43% potential upside. “We’re going to see some headwinds for CNC stock, but it’s going to be more constrained because of the valuation level and the lower focus on Medicaid reform this time around,” he said. Centene shares are down more than 11% year to date. Unlike UnitedHealth, the company’s stock has fallen 3% since the June debate. Raymond James sees Oscar Health, HCA Healthcare and Tenet Healthcare as beneficiaries of the left’s victory. “A Democratic sweep would almost guarantee an extension of the Affordable Care Act’s expanded subsidies, which is clearly a positive for OSCR,” Ransom said. About 95% of its members are from the ACA exchanges. Oscar Health shares have soared 64% this year, but have fallen 17% since the debate aired. He said it would also benefit HCA and Tenet Healthcare given their operations in Florida and Texas. These two markets account for approximately 36% of ACA enrollment. When Raymond James launched Oscar in late March with an outperform rating and a $20 price target (currently 33% above the stock’s latest closing price), Ransom acknowledged that the company ‘s fate will be sensitive to news of ACA subsidies. However, he expects Oscar’s new CEO, the former head of CVS Health’s Aetna, to cut costs to boost profit growth.
