In case you haven’t heard, the Republicans’ new healthcare bill to repeal and replace ObamaCare—known in some corners as Trumpcare—is essentially dead, at least for now. Trumpcare failed to garner enough support to even be put up for a vote in the Senate. As a result, some high-profile health insurance stocks were down sharply in Tuesday trading.
Not all of them will stay down long. For many health insurance stocks, the kneejerk negative reaction to Monday’s news will have a very short shelf life. The market is notorious for its overreaction, especially to major news events, and certain healthcare stocks (namely large insurance providers that would have been most affected by a new healthcare bill) were punished more severely than deserved. And that creates a buying opportunity.
Buying bad news is a good way to get into strong stocks at a temporary discount. When the market over-punishes a certain sector, great growth stocks can become bargain stocks in a matter of days.
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So, with the healthcare sector getting roughed up a bit in the wake of the Senate’s failure to replace the Affordable Care Act, here are three fairly beaten-down health insurance stocks to buy on the cheap right now.
Health Insurance Stock #1: UnitedHealth Group (UNH)
Shares of this Minnesota-based health benefits giant (market cap: $177 billion) tumbled more than 1% in early Tuesday trading, and is down 2% from its early-July highs. At 17 times forward earnings estimates as of this writing, UNH is trading at its cheapest forward valuation in three months. Despite that, the stock still has plenty of momentum, up 15% year to date and trading well above its 50-day moving average. UNH probably won’t stay down long.
Health Insurance Stock #2: Humana Group (HUM)
Down an even 2% in early Tuesday trading, this provider of healthcare insurance and Medicare benefits dipped to its lowest level in more than a month. Its forward price-to-earnings ratio (19) remains a bit lofty, but reasonable considering analysts expect Humana to grow earnings by 33% in the second quarter (results are due out August 2) and 17% for the year. And HUM stock is still up 14% for the year and 47% in the last 12 months despite yesterday’s dip. If it can hold support around 232, this mini-pullback could be little more than a blip for HUM.
Health Insurance Stock #3: Aetna (AET)
Surprise, surprise: another large health insurance provider ($50 billion market cap) getting roughed up. Shares of Aetna were up 1.4% in early Tuesday trading, its biggest one-day dropoff since May. Days like Tuesday have been few and far between for AET of late: the stock is up 18% in the last three months alone, 23% in 2017, and 31% in the last 12 months. The stock hasn’t fallen below its 50-day moving average since February, and still isn’t close (see chart below). And the company anticipates 9% EPS growth this year and another 11% growth next year. Those growth projections don’t outpace the company’s forward P/E, but at 15 that number is the lowest it’s been since April.
I wouldn’t exactly call AET a value stock. But it is an impressive growth stock that has repeatedly shaken off brief dips like this and continued to motor higher for the past six months. Like the two other health insurance stocks mentioned above, it’s a good “Buy Bad News” candidate.
Now, if you want recommendations for other deep value stocks, you should take out a subscription to our Cabot Benjamin Graham Value Investor advisory. In it, editor Roy Ward has been beating the market and value investing legend Warren Buffett by a wide margin for more than two decades, as this chart demonstrates.
If you’re interested, click here. In the meantime, keep your eye on those health insurance stocks in the coming days and weeks.
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