Home/Blog/Trading Ideas/Obamacare: Not Exactly Weighing Down the Healthcare Rally

Obamacare: Not Exactly Weighing Down the Healthcare Rally

21 June 2013 in Trading Ideas

Is it worth wondering where the outrage meter regarding the implementation of the country’s Affordable Care Act now stands in the wake of a strong performance by healthcare stocks?

After all, as Bill Toland recently posited in the Pittsburgh Post-Gazette, the sector’s strong showing seems somewhat counterintuitive: All of its sub-sectors are under stress, thanks to various provisions of the law (“Obamacare”) that are attempting to wrestle with health costs, hospital performance and health insurer profit margins. Hospital and prescription use is flattening.1

But here’s the reality: Healthcare is the best-performing sector in the S&P 500 so far this year, according to Jim Russell, senior equity strategist with US Bank Wealth Management Group.

The Obamacare motif, a portfolio of 20 healthcare-related stocks expected to perform well with the implementation of the law, is down 0.5% in the past 30 days, and has risen 21.3% in 2013.

The S&P 500 is down 3.6% in the past 30 days, and has gained 10.0% so far in 2013.

Obamacare

On the other hand, when you think about it, is it really such a stretch that anticipation of the law’s effects would be a boon for healthcare stocks. As Toland noted, the law should mean that millions of more Americans will become new customers in the healthcare system. “That means millions more patients for hospitals, millions more policyholders for health carriers, and millions more consumers of prescription drugs,” he wrote.

Indeed, as investment strategist Kevin Sullivan recently wrote for Bloomberg, many analysts see hospital stocks as the biggest upcoming winner with Obamacare.2 Hospitals will likely see a big reduction in the number of emergency-care patients unable to pay their bills, for example, and the law will likely spur demand for more elective procedures, Sullivan said.

As for pharmaceutical firms, a new report from research firm GlobalData of London estimates that Obamacare will increase industry revenue by one-third by the end of the decade, generating between $10 billion and $35 billion in additional profits in the next decade.3

What’s not to like, right?

Open an Account

Here, now, the cold dash of water: Toland points to a report last month from Fitch Ratings that estimates that while Obamacare might provide a temporary boost to healthcare “utilization,” it will not be a panacea for what has been slowing growth.

That could mean many of the companies currently feeling good cheer from investors can’t for long escape their task of continually looking for improved profit performance.

1Bill Toland, “Obamacare fueling surge in health sector stocks,” Pittsburgh Post-Gazette, June 13, 2013, http://insurancenewsnet.com/oarticle/2013/06/13/obamacare-fueling-surge-in-health-sector-stocks-%5bpittsburgh-post-gazette%5d-a-384458.html?newswires#.UcEHBPnCZ8E, (accessed June 19, 2013).

2Kevin Sullivan, “More Potential Hospital Gains Under Obamacare, BloombergBlack, June 13, 2013, http://explore.bloombergblack.com/insights/2013-06-13/more-potential-hospital-gains-under-obamacare/, (accessed June 19, 2013).

3Bruce Japsen, “Obamacare Will Bring Drug Industry $35 Billion In Profits,” Forbes.com, May 25, 2013, http://www.forbes.com/sites/brucejapsen/2013/05/25/obamacare-will-bring-drug-industry-35-billion-in-profits/, (accessed June 19, 2013).

Tags: Obamacare

*