Insurance stocks flopped Wednesday after President Barack Obama's re-election reinforced the future of his health care overhaul, a law that fills investors with worry about government restrictions and tighter profits.
But Bernstein analyst Ana Gupte sees buying opportunities after shares of major health insurers fell anywhere from about 4 percent to nearly 8 percent in Wednesday trading. The exception in that group was Cigna Corp., which has a broader business portfolio than other insurers. Its stock fell less than 1 percent.
The overhaul aims to cover millions of uninsured people, but it also imposes fees and restrictions on insurers, and it cuts funding for Medicare Advantage, the privately run version of the government's Medicare program for the elderly and disabled. Investors worry about these changes, and some also are concerned that insurers will be stuck with thin profit margins from the business they gain via new online exchanges that will be set up to help people buy coverage.
Gupte said in a recent research note that the risk of thin profits in the commercial business is manageable and already priced into company stocks. She also noted that Medicare and the state-federal Medicaid program for the needy and disabled represent attractive growth opportunities for insurers.
Medicaid enrollment will expand under the overhaul, and states hire insurers to administer their Medicaid programs. States also are moving residents who qualify for both Medicaid and Medicare into privately run managed care programs that coordinate their care better.
Gupte listed Humana Inc., Aetna Inc. and UnitedHealth Group Inc. among her favorite picks.
Citi analyst Carl McDonald said in a separate note that the overhaul is already cutting funding for Medicare Advantage plans, and he doesn't think the program will see additional cuts. Even if they do happen, McDonald said that doesn't necessarily hurt profitability.
"If reimbursement falls, as we've seen over the last few years, plans cut benefits, and margins are generally unaffected," he noted.
Several insurer stocks continued to slip in Thursday trading, but at a slower pace than they did Wednesday. UnitedHealth shares fell 18 cents to $54.08; WellPoint Inc. was down 2.7 percent, or $1.57, to $56.28; Aetna climbed 14 cents to $42.83; Humana dropped 2 percent, or $1.40, to $68.76; and Cigna was down 66 cents to $52.30.