Looking for a group of stocks that can withstand China, politics and a slowdown in the economy that the vast majority of investors are expecting? Wondering what still has high growth in an environment where a 10-year Treasury at 2.32% signals that the expansion is finally winding down?
I have one: managed care. This hated group has some pep in its step of late and you have to ask why, given the wholesale destruction of this group since the middle of April when UnitedHealth's (UNH) shares rallied on a sharply better than expected quarter and a huge guide up, from $14.40 to $14.50-$14.75, only to crash down by the end of the day.
That nasty, horrid pirouette defined the group because the CEO, David Wichmann, criticized those who favored the single-payer concept saying such a policy would destroy the quality health care that the system provides. Wichmann prefers the status quo and said the "wholesale disruption of the American healthcare being discussed in some of the proposals would surely jeopardize the relationship people have with their doctors, destabilize the nation's health care system and limit the ability of clinicians to practice medicine at their best." The riposte came directly on top of then-front runner Senator Bernie Sanders who has just advocated health care for all provided by the federal government, the so-called single-payer option which would "eliminate private insurance."
The stock hit $208 in the next day in the wake of Wichmann's fighting words, $79 below its all-time high of $287 Dec. 4 -- quite a comeuppance to what had been the safest large capitalization stock to invest in if the trade war escalated, which it certainly has.
But a funny thing happened soon after the nadir, the stock started rallying -- seemingly on nothing. Or at least it seemed like nothing. Looking back now, though, it seems obvious what occurred: on April 24, with the stock at $230, former Vice President Senator Joe Biden declared his candidacy for president. It's been going straight up since then and was incredibly strong Monday, rallying $4.61.
Unlike the entire field of Democratic hopefuls, Biden is not on the record favoring single-payer health care. In fact, he is known to favor not universal healthcare for all but universal healthcare INSURANCE for all. In other words, the nuclear option against UnitedHealth and the entire cohort would be off the table if he wins.
Since then what's happened? Biden has emerged as the instant favorite, something solidified this weekend with his announcement of his campaign headquarters in Philadelphia, something he hopes will cement a state the Democrats lost, a key move that might swing this key state to the win column.
So now let's look what has happened. As the president ratchets things up with the Chinese, via the Huawei shutdown, and will most certainly go to 25% on the last $300 billion in imports, this group will not have its earnings hurt at all. Unlike the retailers, which are typically a safe haven when international turmoil exists but are now being hurt by import tariffs, investors in this group have nothing to fea
Now what's best here? First, obviously is UnitedHealth. It's the biggest and also had one of the best beat-and-raises out there. Second is Centene (CNC) , which has been the biggest winner from Obamacare because it provides insurance to so many people that otherwise would not have it who rely on the Obamacare exchange while also improving on Medicaid in many states.
Then last I would suggest CVS (CVS) , which has been hammered endlessly by its front-of-the-store wholesale "destruction" by Amazon (AMZN) and the back of the store by its purchase of Aetna, a premier managed care contractor. This one, with a 3.78% yield is the cheapest of the group selling at 8 times this year's earnings. (we own UNH and CVS for the Action Alerts PLUS trust).
Of course, Biden's instant front-runner status is also good for the pharmaceuticals and the hospital chains -- may I suggest HCA Healthcare (HCA) for you -- but more important it is not too late to invest in any of these because the president keeps giving you another reason to bail from those companies that still do business with China. UNH isn't ever going to insure in China.
I say, make the purchases now right into the weakness. They will come to the fore the more Biden squawks and the less his rivals, especially Sanders, do well in the polls.
