I caught some flak for
this recent assessment of the one stock to buyif
Obamacare looks destined to fail. Indeed, one reader wrote in
to say that I "suck as a human being." Reading between that
line, I
thinkthe point was that, at least in my write-up, I
wasn't sufficiently sympathetic to the
cause of health-insurance reform.
To which I say …
Au contraire!
Indeed, my point was that the then-emerging reform
seemed pretty toothless, particularly in terms of cost
controls. A logical, non-sucky inference: If that kind of
"reform" passed, insurance-industry stalwarts like
WellPoint (NYSE: WLP),
Aetna (NYSE: AET), and
UnitedHealth Group (NYSE: UNH) would likely
benefit.
And good for them.
I too have a hot opinion about the way health-insurance
reform ought to proceed. My job as your friendly neighborhood
Foolish stock analyst, however, is to point out opportunities
where they exist -- not just where I'd like them to be. All
the above are smartly managed businesses, and each is poised
to profit if -- as seems likely -- reform includes a mandate
that would require even the young and the healthy to buy
insurance.
Plain and simple, that's just a massive win for the
insurance industry.
Option trade
In recent days, though, the previously left-for-dead
public option has re-entered the conversation and will
apparently be in both the House and Senate versions of
health-care legislation. To which I say: hooray. If such an
option becomes the law of the land, the industry will get its
new, highly desirable clientele. We health-insurance
consumers, meanwhile, will get a cost-control mechanism with
teeth.
Summertime town-hall heat notwithstanding, I think that'll
be a proverbial win-win scenario, though in the near term it
alters the investment-opportunity landscape.
Two for one
Should it pass, the inclusion of a public option will
probably create two investment opportunities.
First, because cautious-to-a-fault fund managers
frequently stick close to the market's sector weights,
billions of fund-money dollars will likely stay in health
care even if managers trade out of insurers. Against a
backdrop that features a rickety economy and a rally that's
created a huge valuation chasm between racy plays and
buttoned-down fare,
Johnson & Johnson (NYSE: JNJ) seems like
an easy layup to me.
With price-to-cash flow and price-to-earnings multiples
well below the company's five-year average, the broadly
diversified JNJ provides a no-brainer safe haven for harried
fund managers looking to preserve gains as an extraordinary
year winds down. Bonuses are at stake, people!
A similar, if growthier, case can be made for biotech
behemoths
Amgen (NYSE: AMGN) and
Gilead Sciences (NYSE: GILD). Each also
trades at discounts to historical P/E and P/CF multiples, and
both will look inviting to money managers in search of a soft
landing. They're high-quality, name-brand companies that lots
of those managers' buddies probably own, too.
What a Fool believes
As Peter Lynch explained, individual investors have
massive advantages over Wall Street big boys, a group that
looks small in light of its herd mentality and CYA thinking.
Indeed, that dynamic creates opportunities for Fools like us,
leading directly to the second of our two investment
opportunities:
inVentiv Health (Nasdaq: VTIV), a company
that aims to help its well-heeled clientele of health-care
concerns control costs. Those customers outsource to inVentiv
tasks that are cost centers for them but are revenue centers
for this small-cap up-and-comer. Continued... |