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Healthcare Stocks
Healthcare Stocks HUM, AET, UNH
BUY === > Humana (HUM, $66)
This Louisville, KY. – based insurer could get a boost in 2011 from two of the most powerful forces around: the U.S. military and Wal-Mart Stores. Humana got a two-year extension to provide insurance for soldiers and started a prescription drug plan with the megaretailer.
Humana is one of just two insurers that Ana Gupte, senior analyst at Bernstein Research, expects to have double-digit earnings per share growth each year for several years. Humana is trading at eight times 2011’s expected profits, about average for health insurers.
SELL === > Aetna (AET, $37)
Investors might wonder if Hartford, Conn. – based healthcare stock Aetna has come down with something. For most of last year, the firm lost membership in both its commercial and Medicare segments. Meanwhile, the government’s Center for Medicare & Medicaid Services stopped the insurer from enrolling new members into Medicare Advantage and certain prescription drug plans through 2011.
Gupte expects just single-digit growth from the company for the next few years. An Aetna spokesperson says the firm is working to get the Medicare sanctions lifted.
With 75 million customers, healthcare stocks like UnitedHealth Group is the nation’s largest insurer. The firm has several lines of business that might help it minimize any problems that crop up as a result of health care reform, analysts say. That diversification could be put to the test, however. About one quarter of its business is Medicare-related, and the company faces a “challenging reimbursement environment,” says Charles Boorady, health care analyst at Credit Suisse.
The Minnetonka, Minn. – based firm announced that it had won business from the military, but then the military extended its contract with Humana. The result is that UnitedHealth can’t service soldiers until at least 2012, although a United Health spokesperson says the firm’s bid is still being reviewed.
