The ‘Trump trade’ has divided health-care stocks into two camps. How to play the next moves
This year’s presidential election is already sending health-care stocks on a wild ride. Historically, shifts in political control have created “increased volatility” across the sector, sending investors “to look for areas of safety,” Raymond James analyst Chris Meekins said in a July 7 note. “This election is likely to produce distinct, binary, opposing health policy outcomes depending on who wins.” With subsidies for the Affordable Care Act expiring next year and intense scrutiny of Medicare Advantage plans in recent months, health insurers may be even more sensitive to this pattern than usual. Indeed, it already appears evident in how managed-care stocks are trading. At the start of the week, traders seemed to have come to the conclusion that former U.S. President Donald Trump was amassing an unbeatable lead against Joe Biden . The current president’s reelection campaign has been struggling since Biden’s disastrous debate performance on June 27. Calls for him to bow out of the race quieted briefly after a failed assassination attempt against Trump, but on Thursday pressure was building once again. A look at how UnitedHealth Group shares have traded amid these headlines gives a sense of the swings in sentiment. As of Thursday’s close, the stock had been underperforming the market with a 7% gain year to date. However, since the presidential debate, the shares are up nearly 17%. The stock hit a fresh 52-week high in trading Wednesday, but has moved off its high in recent sessions as it started to look as though Biden might step aside . UNH 1M mountain UnitedHealth stock over the past month. The broader health-care sector, a defensive, “late-cycle” group, generally struggles in election years and the year after — and historically outperforms the second year after an election, Meekins noted. Most health-care sectors also perform “much better” when a Republican wins the presidency. The broad universe of health-care stocks has underperformed by roughly 19% during the Biden presidency, the analyst said. What a GOP victory means Analysts expect Republican leadership would lessen regulatory scrutiny by the Federal Trade Commission and Department of Justice, while still tamp down drug prices. However, it could mean the end of expanded individual health-care subsidies. That’s important because this benefit, which was established under the ACA, or Obamacare, reduces the monthly premiums and out-of-pocket costs for middle- and low-income individuals. It is set to expire at the end of 2025, and a GOP sweep could assure that. Raymond James’ Meekins said the end of subsidies could lead to a large number of newly uninsured people, hurting hospitals and managed-care companies, which would see lower enrollment. On the flip side, analysts see a Trump win as a positive for Medicare Advantage carriers. Think Centene , Molina Healthcare , UnitedHealth and Humana , among others. Medicare Advantage is a kind of Medicare health plan offered by private insurance companies that, through annual contracts, generally provide the same coverage as original Medicare, but often with additional benefits such as vision and dental coverage. “A Trump administration would be more favorable from a rate perspective, which will help alleviate some of the cost issues [Medicare Advantage carriers] have been feeling and the pressure they’ve been feeling on the medical costs side, compared to what they’ve experienced under the Biden administration so far,” Meekins said. History bodes well for the group. Managed-care companies historically buck the broader trend of health stocks and outperform in the first year after an election, according to Raymond James. Analysts from several firms, including Raymond James, Bernstein and RBC Capital Markets, believe UnitedHealth, Humana and CVS Health would be among the biggest beneficiaries of a Trump win. Recent gains at UnitedHealth, the largest private insurer in the U.S., not only reflect the shifting political winds. There has been a turnaround in investor enthusiasm due to a strong second quarter that reignited confidence in the company’s outlook. Jefferies analyst David Windley praised the company’s efforts to pinch costs, saying it could lead to a “superior ’25 setup” for the stock. Windley sees a Trump win resulting in membership growth, and UnitedHealth appears “best positioned to capture the full economic opportunity.” He holds a buy rating and $647 price target on the stock, which implies the shares could jump nearly 15% from Thursday’s close. RBC Capital Markets analyst Ben Hendrix said UnitedHealth would see the most immediate upside among the managed-care organizations under a Trump administration as its Optum unit would benefit from an easing regulatory environment. Optum has helped fuel the company’s record profits by offering a range of primary-care, specialty and urgent-care services to nearly 104 million consumers . In late February, the DOJ launched an antitrust investigation to look into the role giant conglomerates have played in rising health-care costs. Alongside UnitedHealth and Humana, Raymond James analyst John Ransom also expects managed-care provider Alignment Healthcare to benefit from a GOP sweep, as he said these three names have relatively high exposure to Republican-favored Medicare Advantage plans and less or none to the ACA. Humana has lost more than 15% this year, but like UnitedHealth, its shares have risen nearly 8% since the presidential debate. Piper Sandler initiated coverage of Humana with an overweight rating and $392 price target on June 25, saying a “turnaround” for the company is underway, aided by a new CEO and the expected growth in the Medicare Advantage market. “We think the HUM brand has an enduring competitive moat … and we believe the company’s purpose-built healthcare delivery and services infrastructure should improve outcomes and bend the cost curve through center-based, at-home and pharmacy care over time,” the firm said, adding that the stock is cheaper than it appears. Telehealth and prescription drug provider GoodRx Holdings could also get a lift if a Republican sweep eliminates the ACA-enhanced subsidies, Ransom said. Shares are up more than 20 % year to date. “With the potential for millions of ACA members to lose insurance coverage, we believe GDRX could stand to benefit as individuals would increasingly seek prescription savings,” he said. What a Democratic victory means If Democrats overcome their recent struggles, either with Biden or another candidate, analysts see managed-care names linked to the ACA and hospitals as winners. In this scenario, Bernstein analyst Lance Wilkes expects Centene to benefit as the largest Medicaid managed-care organization. He has an outperform rating and bullish $94 price target on the stock, suggesting more than 43% potential upside. “We would see some stock price headwinds for CNC, but more limited due to valuation levels and lower focus on Medicaid reform this time,” he said. Centene shares are down more than 11% year to date. Unlike UnitedHealth, shares have fallen — down 3% — since the June debate. Raymond James sees Oscar Health , HCA Healthcare and Tenet Healthcare as beneficiaries of a victory by the left. “A Democratic sweep would almost guarantee an extension of the Affordable Care Act expanded subsidies, which would be a clear positive for OSCR,” Ransom said. About 95% of its membership comes from the ACA exchanges. Shares of Oscar Health are up a whopping 64% this year, but the stock has fallen 17% since the debate aired. It would also benefit HCA and Tenet Healthcare, given the pair’s exposure to Florida and Texas, he said. The two markets comprise roughly 36% of total ACA enrollment. When Raymond James initiated Oscar in late March with an outperform rating and $20 price target — now 33% higher than the stock’s latest close — Ransom acknowledged its fortunes would be sensitive to news around ACA subsidies. However, he expects Oscar’s new chief executive, the former head of CVS Health -owned Aetna, to boost earnings growth through cost cutting.
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