Investors busy assessing how the state of the global economy will affect their stock portfolios should start thinking about how the presidential race will weigh in.
Health care remains a subject of divide between the two parties, with Republicans trying to repeal Obama's nationwide health care reform since 2010. And, while it is unlikely they can overturn the entire law, they can certainly chip away at parts of it.
If Republicans take control, Citigroup estimates that large commercial providers of health insurance plans may see their earnings grow by 5% to 10%. That kind of growth would increase these companies' worth by 20%. The companies are currently estimated to see a 5% to 15% drop in earnings, according to a recent analyst report by the firm.
Within the broader managed care sector, which includes commercials plans, and Medicaid and Medicare plans, Citigroup says that valuations on most stocks should tack on at least an additional 2 multiple points. If a Republican fails to win the presidential seat but the party gains control of the senate, the valuation of the group would add up to one point.
This is all good if Republicans make a sweeping win, but what if President Obama takes office for second term? Even then, investors may benefit yet.
"The market seems to be discounting maintenance of the political status quo," writes Citigroup, which estimates that managed care stocks are trading under the 9.5x 2012 earnings estimates.
Investors may want to skew their picks toward companies providing commercial plans. Under a Republican victory, Citigroup says stocks that would benefit most in this category rank in the following order: WellPoint(WLP_), Coventry Health Care(CVH_), UnitedHealth Group(UNH_), Aetna(AET_), CIGNA(CI_) and Health Net(HNT_).
For Medicare plans, the firm picks Humana(HUM_), HealthSpring(HS_), Universal American(UAM_) and WellCare(WCG_). All these companies provide elderly with Medicare through private health insurance plans called Medicare Advantage.
The idea behind investing in the above Medicare plans is that Republicans have historically encouraged seniors to enroll in Medicare Advantage programs. In addition, Citigroup notes that Republicans have been willing to give the programs a fair reimbursement. By contrast, under Obama's reform, government subsidies to the Medicare Advantage program would be gradually eliminated altogether.
On the Medicaid end of the spectrum, stocks are a tougher pick. Republicans might impact Medicaid in two ways:
The Medicaid market is expected to increase by around 30% in 2014, according to Citigroup. But, Republicans may try to do away with this expansion and cut back the money that states use to fund Medicaid programs. A company like AMERIGROUP(AGP_), with a $3.3 billion market cap, for example would lose a whopping $2.5 billion in revenue, according to Citigroup.
Even so, Citigroup say that Medicaid companies would still prefer a Republican administration to a Democratic one. "Republicans are much more philosophically aligned with moving the care of the dual eligibles into managed care organizations," writes the firm.
What that means is that that those qualifying for both Medicare and Medicaid benefits maybe more inclined to find Medicaid programs under a Republican administration. According to analysts' estimates, that opportunity would deliver more than $320 billion in revenue per year for Medicaid managed care providers. By contrast, Medicaid revenue would only add over $40 billion without dual eligibility.
The bottom line is: Keep an eye on opportunities within health insurance providers, particularly commercial providers, if you believe Republicans will win the election this year. But if you believe otherwise, the space is still worth your consideration.