Health Insurance Stocks Poised For Gains After COVID-19

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Major health insurance companies have seen their stock prices decline by an average of over -4% year-to-date, due to the coronavirus pandemic. While CVS Health’s stock (NYSE:CVS) is down by about 15% year-to-date, UnitedHealth Group (NYSE:UNH) is down a mere -1%. However, Humana’s stock (NYSE:HUM) has bucked the trend, rising 6%. The health insurance companies stand to benefit in the current crisis, as there will be more enrollments to Medicaid plans. However, the employee sponsored health plans will decline with increasing unemployment. Though our health insurance stocks portfolio has seen a 4% decline, it has significantly outperformed the broader markets, with the S&P 500 down 12% year-to-date. All said, it might be a good time to invest in the theme, as healthcare stocks in general have thus far been more resilient during the current crisis. However, some investors could choose to invest a fraction into the theme now, still keeping funds ready if things unfold for the worse in the coming weeks and months, resulting in broader market declines.

For most of the health insurance companies, 2021 enrollments will likely be very high given the impact of the COVID-19 crisis. Also, these companies will benefit from postponement of elective surgeries, as they have to bear the costs of such surgeries. Though this benefit could be limited to a couple of quarters. Our Heath Insurance portfolio of 6 stocks including UnitedHealth Group, CVS Health, Humana, Cigna, Anthem, and Centene Corp, shows an average decline of about -1% in the last five trading days (through May 14) compared with a -2% decline in the S&P 500 over the same period. Year-to-date, CVS Health is the worst performer, posting declines of about -15%. On the other hand, Humana has gained 6% while the largest health insurance company in the portfolio, UnitedHealth Group, has seen its stock remain relatively flat. Overall, there is a significant variance, as summarized on the dashboard Health Insurance Companies Portfolio.

Humana (6% YTD return, $51 billion market cap): Humana’s market cap has increased by $2 billion from about $49 billion on 12/31/2019 to $51 billion now. The company had $64.9 billion in revenue in 2019 from which it derived $2.7 billion in net income and $20.20 in earnings per share.

CVS Health (-15% YTD return, $81 billion market cap): CVS Health’s market cap has declined by $16 billion from about $96 billion on 12/31/2019 to $81 billion now. The company had $257 billion in revenue in 2019 from which it derived $6.6 billion in net income and $5.10 in earnings per share.

CVS is the worst performer year-to-date in the portfolio above, but it offers a buying opportunity compared to UnitedHealth. In fact, CVS appears to be a better buy compared to Kroger as well.

 

What do you think will lead UnitedHealth Group’s $330 billion revenue in 2020: Medicare or Optum?

Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs 4 Historic crashes builds a complete macro picture and complements our analyses of the coronavirus outbreak’s impact.

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