This year’s presidential election is already prompting a flurry of health care stocks. Historically, shifts in political control have created “increased volatility” across the sector, prompting investors “to look for areas of safety,” Raymond James analyst Chris Meekins said in a July 7 note. “This election is likely to produce distinct, binary, and opposing health policy outcomes depending on who wins.” With subsidies for the Affordable Care Act expiring next year and intense scrutiny of Medicare Advantage plans in recent months, health insurers may be even more sensitive to this pattern than usual. In fact, it already seems evident in how managed care stocks are trading. Earlier in the week, traders seemed to have concluded that former U.S. President Donald Trump was building up an unbeatable lead against Joe Biden. The current president’s reelection campaign has been in trouble since Biden’s disastrous performance in the June 27 debate. Calls for him to drop out of the race briefly died down after a failed assassination attempt on Trump, but on Thursday the pressure was mounting once again. A look at how UnitedHealth Group stock has traded amid these headlines gives a sense of the shifts in sentiment. As of Thursday’s close, the stock had underperformed the market with a 7% gain so far this year. Since the presidential debate, however, shares are up nearly 17%. The stock hit a new 52-week high in Wednesday trading but has pulled away from its peak in recent sessions as it began to look like Biden might step aside. UNH 1M mountain UnitedHealth stock over the past month. The healthcare sector in general, a “late-cycle” defensive group, typically struggles in election years and the year after, and historically outperforms the second year after an election, Meekins noted. Most healthcare sectors also perform “much better” when a Republican wins the presidency. The broad universe of health care stocks has underperformed by about 19% during Biden’s presidency, the analyst said. What a Republican win means Analysts expect Republican leadership to reduce regulatory scrutiny by the Federal Trade Commission and Justice Department while continuing to lower drug prices. It could, however, mean the end of expanded individual subsidies for health care. That’s important because this benefit, which was established under the ACA, or Obamacare, lowers monthly premiums and out-of-pocket costs for middle- and low-income people. It’s set to expire at the end of 2025, and a GOP sweep could lock it in. Meekins of Raymond James said the end of subsidies could lead to a large number of newly uninsured people, hurting hospitals and managed care companies, which would see lower enrollment. On the other hand, analysts see a Trump win as a positive for Medicare Advantage providers. Think Centene, Molina Healthcare, UnitedHealth and Humana, among others. Medicare Advantage is a type of Medicare health plan offered by private insurance companies that, through annual contracts, typically provide the same coverage as original Medicare, but often with added benefits like dental and vision coverage. “A Trump administration would be more favorable from a rate perspective, which would help alleviate some of the cost issues.” [Medicare Advantage carriers] “History bodes well for the group. Managed care companies historically buck the broader trend in healthcare stocks and outperform in the first year after an election, according to Raymond James. Analysts at several firms, including Raymond James, Bernstein and RBC Capital Markets, believe UnitedHealth, Humana and CVS Health would be among the biggest beneficiaries of a Trump victory. Recent earnings at UnitedHealth, the largest private insurer in the U.S., don't just reflect shifting political winds. There's been a shift in investor enthusiasm due to a strong second quarter that rekindled confidence in the company's prospects. Jefferies analyst David Windley praised the company's efforts to cut costs, saying it could lead to a “top '25 setup” for the stock. Windley thinks a Trump victory will result in membership growth, and UnitedHealth appears “better positioned to capture the full economic opportunity.” He has a buy rating and a $647 price target on the stock, implying the shares could rise nearly 15% from Thursday’s close. RBC Capital Markets analyst Ben Hendrix said UnitedHealth would see the most immediate surge among managed care organizations under a Trump administration as its Optum unit would benefit from a looser regulatory environment. Optum has helped fuel the company’s record profits by offering a range of primary, specialty and urgent care services to nearly 104 million consumers. In late February, the Justice Department launched an antitrust investigation to look into the role giant conglomerates have played in driving up health care costs. Along with UnitedHealth and Humana, Raymond James analyst John Ransom also expects managed care provider Alignment Healthcare to benefit from a GOP sweep, as he said all three of these names have relatively high exposure to Republican-favored Medicare Advantage plans and less or none to the ACA. Humana has lost more than 15% this year, but like UnitedHealth, its shares are up nearly 8% since the presidential debate. On June 25, Piper Sandler initiated coverage of Humana with an Overweight rating and a $392 price target, saying a “turnaround” is underway for the company, helped by a new CEO and expected growth in the Medicare Advantage market. “We believe the HUM brand has a durable competitive advantage … and we believe the company’s purpose-built healthcare delivery and services infrastructure should improve outcomes and flatten the cost curve across facility-based, home-based and pharmacy-based care over time,” the firm said, adding that the stock is cheaper than it appears. Telehealth and prescription drug provider GoodRx Holdings could also get a boost if a Republican victory eliminates ACA-enhanced subsidies, Ransom said. The stock is up more than 20% so far this year. “With the potential for millions of ACA members to lose insurance coverage, we believe GDRX could benefit as people increasingly seek savings on prescription drugs,” he said. What a Democratic win means If Democrats overcome their recent struggles — whether with Biden or another candidate — analysts see managed care names tied to the ACA and hospitals as winners. In this scenario, Bernstein analyst Lance Wilkes expects Centene to benefit as the largest Medicaid managed care organization. He has an Outperform rating and a $94 bullish price target on the stock, suggesting more than 43% upside potential. “We would see some share price headwinds for CNC, but more limited due to valuation levels and less focus on Medicaid reform this time around,” he said. Centene shares are down more than 11% so far this year. Unlike UnitedHealth, the stock has fallen — 3% — since the June debate. Raymond James sees Oscar Health, HCA Healthcare and Tenet Healthcare as beneficiaries of a left-wing victory. “A Democratic sweep would all but guarantee an extension of the Affordable Care Act’s expanded subsidies, which would be a clear positive for OSCR,” Ransom said. About 95% of its membership comes from ACA exchanges. Oscar Health shares are up an impressive 64% this year, but the stock has fallen 17% since the debate aired. It would also benefit HCA and Tenet Healthcare, given the pair’s exposure to Florida and Texas, he said. The two markets comprise about 36% of total ACA enrollment. When Raymond James initiated Oscar in late March with an outperform rating and a $20 price target — now 33% higher than the stock’s last close — Ransom acknowledged that its fortunes would be sensitive to news about ACA subsidies. Still, he expects Oscar’s new CEO, the former head of CVS Health-owned Aetna, to drive earnings growth by cutting costs.
