Advertisement
investing

Hospital Stocks Rally on Failed Obamacare Repeal

The demise of an attempt to eliminate and replace the Affordable Care Act is good news for hospital operators.

The collapse of GOP efforts to repeal Obamacare will cut across many sectors. Whether it's good news or bad news depends on which stocks you own. Some parts of the health care industry would have been hurt by the passage of the American Health Care Act (AHCA), the Republican alternative. But no group of stocks has rallied in relief like hospital operators. Here are two hospital stocks to consider buying after the death of the AHCA, and one to ignore:

Tenet Healthcare (symbol THC)

Shares in the hospital company jumped as much as 8% in early trading before settling down to more modest gains. There were reasons to be optimistic about Tenet even before repeal and replace failed, so these gains have a chance of sticking.

Advertisement - Article continues below

The company's acquisitions of three other health care providers in 2015 have exceeded expectations. UBS analyst A.J. Rice rates shares at "buy," citing the company's focus on smaller projects with faster payback. The analysts' target price of $24 implies a gain of 29% in the next 12 months or so.

Analysts note that even if the AHCA passed and did away with public health care exchanges, it would have hurt the company's admissions by only about 1%.

Universal Health Services (UHS)

Shares in Universal Health Services rose as much as 5.4% quickly after the opening bell on Mar. 27, after the failure of the AHCA prompted some analysts to upgrade their ratings.

Advertisement
Advertisement - Article continues below

Japan's Mizuho Equity Research upgraded UHS to "buy" from "neutral" (hold, essentially) now that it has moved into a "nicer, friendlier neighborhood, one that includes continuation of the important benefit of the Medicaid expansion and without a near- or medium-term threat of block grants."

Advertisement - Article continues below

With the overhang of changes to the health care system removed, the analysts say the stock is undervalued based on its strong volume of patients and free cash flow generation. Of the 11 United Health analysts followed by Zacks, seven recommend it as a strong buy, while four say it's a "hold."

Community Health Systems (CYH)

Shares in Community Health jumped as much as 6% after the Mar. 27 opening bell. It was just the latest boost for a stock that is having a good year after a prolonged series of woes. In the last 3 years, Community Health has been forced to settle with Justice Department over billing practices, been the victim of a hacking attack, and paid $1.9 million to settle a lawsuit brought by a whistleblower.

Although Community Health is rising after the demise the AHCA, some analysts worry the outperformance won't last. Credit Suisse rates shares at "underperform" (sell, essentially), in part because the company is being forced to sell off facilities in order to pay down heavy levels of debt. Rising expenses and tough comparisons with last year's results will also weigh in the stock, Credit Suisse says.

Advertisement - Article continues below

Things could have soured quickly for hospital operators if the AHCA passed the House. The Congressional Budget Office estimated that the measure would result in 14 million fewer Americans with insurance by 2018. An additional 24 million people were to be without insurance over the next decade, CBO estimated. These are the hospital industry's paying customers. Investors here can breathe a sigh of relief.

Make no mistake, however, that the threat to the sector hasn't disappeared completely. Credit Suisse analysts expect to see attempts at incremental changes to ObamaCare instead. "We do not yet have a line of sight into how these potential changes may unfold," writes analyst Scott Fidel.

That means lingering uncertainty. Another risk to keep in mind is that it can be a bad idea to buy stocks when they're rallying. The idea is to buy low, after all. That's not to say that investors should avoid all hospital stocks in wake of the latest developments. But they should be selective.

Advertisement
Advertisement

Most Popular

18 Things You Can't Return to Amazon
Smart Buying

18 Things You Can't Return to Amazon

Before tossing these items into your virtual shopping cart, be sure to read Amazon's return policy first.
September 17, 2020
Election 2020: Joe Biden's Tax Plans
taxes

Election 2020: Joe Biden's Tax Plans

With the economy in trouble, tax policy takes on added importance in the 2020 presidential election. So, let's take a look at what Joe Biden has said …
September 18, 2020
7 Foreign Countries Luring Americans to Work Abroad During the Pandemic
careers

7 Foreign Countries Luring Americans to Work Abroad During the Pandemic

Work remotely – really remotely – in these appealing destinations offering special visas for American workers.
September 18, 2020

Recommended

Bonds: 10 Things You Need to Know
Investing for Income

Bonds: 10 Things You Need to Know

Bonds can be more complex than stocks, but it's not hard to become a knowledgeable fixed-income investor.
July 22, 2020
Best Bond Funds for Every Need
Investing for Income

Best Bond Funds for Every Need

In a changing market, it’s important to remember why we hold bonds in the first place.
September 15, 2020
Does a 40% Bond Allocation Make Sense in Today’s Portfolios?
retirement planning

Does a 40% Bond Allocation Make Sense in Today’s Portfolios?

For many investors, the short answer is no. Here’s why, and what you might consider instead.
September 7, 2020
Is the Stock Market Closed on Labor Day?
Markets

Is the Stock Market Closed on Labor Day?

The good news: Stock markets and bond markets alike get the day off for Labor Day. But traders don't get an early start to the weekend.
September 5, 2020