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I’m pretty sure that the Affordable Care Act (or ACA, also known as ObamaCare) is going to create some great investment opportunities, but I have no idea what the ultimate effects of the new government programs will be on the different individual stocks and groups of stocks in the healthcare sector. Even though I can’t predict the broad trends in the sector, I can still focus on traditional valuation measures among the sectors and individual stocks; and when I do that, the HMO’s look pretty cheap almost regardless of what happens with the ACA.
One reason for the cheap valuations is that many investors have been afraid to buy HMO stocks because they don’t know exactly how they will be affected by the ACA. I don’t know either, but at their current low valuations, I think it is likely that the stocks will go up as the uncertainty dissipates. Also, the ACA is likely to result in more industry consolidation, which could make some of the smaller HMO companies buyout targets.
The eight health management value stock picks discussed in our most recent Turnaround Letter represent a range of different market capitalizations, and some occupy specialized niches, but they all appear poised to achieve higher valuations in the not-too-distant future.