Why One Analyst Says To Buy The Dip In These 3 Managed Care Stocks

Any pressure on these 3 managed care stocks is a buying opportunity according to one Cantor Fitzgerald analyst. 

Political uncertainty certainly hasn’t helped health care stocks.

Between constant threats to Obamacare from republicans and calls for “Medicare for All” from democratic presidential candidates, the sector has been on shaky ground.

Now there’s news that Trump administration is moving forward on a plan to switch federal funding of state Medicaid programs to a block-grant system, which could hurt some managed care stocks.

But Cantor Fitzgerald analyst Steven Halper says any selloff of managed care stocks would be premature.

“While the stocks may be pressured in response to this latest development, we believe the probability that block grants will be implemented is extremely low,” Halper wrote in a note to clients. “We would take advantage of any pressure in managed care shares given this development.” 

In particular, Halper has his eyes on Centene (NYSE: CNC), CVS Health (NYSE: CVS), and UnitedHealth Group (NYSE: UNH). 

While Centene has gained an impressive 8.19% so far this year, both UnitedHealth Group and CVS have made just slight moves at 1.86% and -1.02% year-to-date, respectively. 

Centene completed its acquisition of WellCare Health this week, creating a “leading healthcare enterprise committed to helping people live healthier lives through access to high-quality and affordable healthcare solutions,” according to Centene CEO, President, and Chairman, Michael F. Neidorff. 

The combined company will be the largest government health insurance provider in the U.S.

The Wall Street Journal reported last weekend that the the White House will soon announce new rules that would allow states to switch their Medicaid funding to a fixed federal block-grant model. The plan has support from Republicans, but has faced significant opposition from Democrats and had seemed dead in the water.

But while block grants would give full control of Medicaid to states, capping the cost of the program for the federal government, critics say that it would limit access to Medicaid.

Halper said in his note that switching to block grants would likely limit Medicaid spending, which could hurt managed care firms like Centene and UnitedHealth as they operate Medicaid plans.

“Conventional wisdom suggests that if the Federal government were to move away from the current match program to block grands, states would reduce spending and eligibility levels for its Medicaid programs,” the analyst wrote. 

Halper argues that despite the recent developments, the implementation of block grants for Medicaid is still far-fetched.

“We believe that the Trump administration is looking for a win in health care going into the election,” Halper said. “Block grants, in our opinion, are unlikely to be that win.”

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