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Get Your Investing Tactics Ready to Profit from This Supreme Healthcare Event

Companies / Healthcare Sector May 08, 2015 - 01:45 PM GMT

By: ...

Companies Keith Fitz-Gerald writes: Love it or hate it, the Affordable Care Act, aka Obamacare, is one of the biggest single wealth creation opportunities of the next 50 years. But you can’t just pile in like many investors have. That’s a recipe for disaster.

The biggest profits will belong – like they always do – to those who make a “smart entry.”

Fortunately, this isn’t difficult. The entire sector is tailor-made for one of our favorite Total Wealth Tactics – the lowball order.

We’ve talked about this before as a means of maximizing profits when I brought it to your attention ahead of what I (correctly) anticipated would be an oil selloff resulting from the Saudi government’s ill-advised decision to fire the first shot in the oil-pricing war last fall.

At the time I recommended you pick up shares of Halliburton Co. (NYSE: HAL) at a discount. Then, two months later, I suggested you use it again to buy shares of Williams Co. Inc. (NYSE:WMB).  It’s already returned more than 16%, while the S&P 500 has seen gains of just 3.06% over the same time frame.

Now I’m seeing the same set up in healthcare. Only this time, it’s our own government that’s going to shake things up and create the profit-maximizing discounts we know lead to huge profit potential.

It could throw 1/6 of the world’s largest economy into chaos.

As an investor, you’ll absolutely want to be ready for what happens next.

Five Supreme Court Justices Could Destroy the Affordable Care Act This June

Two years ago, the Supreme Court surprised most observers by upholding the constitutionality of the Affordable Care Act, better known as Obamacare. The individual mandate – the requirement that most Americans buy some form of health insurance or pay a fine – survived the highest level of judicial scrutiny. Proponents of Obamacare breathed a sigh of relief.

They were right to – Obamacare couldn’t have survived without the individual mandate remaining intact. If millions of poor and sick people are to be granted affordable health care, they need millions of young, healthy people to join the national insurance pool and effectively lower premiums.

But there’s a weak point – several actually.

Here’s what you need to know. Millions of people who would be required to buy health insurance couldn’t afford to do so. They still can’t. So Obamacare’s drafters included subsidies in the law, allowing millions of poorer Americans to gain insurance and avoid the hefty fines Obamacare would have otherwise dealt them.

Now, if millions of Americans who feel they can do without insurance – the healthiest Americans, in other words – choose to forgo it, health care premiums will skyrocket because health care providers will have to charge correspondingly larger fees to maintain their profit margins.

Capitalism being what it is, those same higher prices will, in turn, drive out larger numbers of healthy people, until only the sickest, oldest Americans are left. When you hear the words, “death spiral” and “health insurance” in the same sentence, this is what they’re talking about.

It’s the nightmare scenario, and it’s only held off so far because the incentives and penalties have forced millions of healthy people to join the exchanges and help pull down costs.

But as is all too often the case in Washington, there’s a crucial section in the 800-page law that was poorly written. Seems the bill’s authors granted subsidies only to health care exchanges established “by the state.”

The Supreme Court is now weighing a case, King v. Burwell, to determine whether the federal subsidies apply in states that haven’t set up their own exchanges. With more than 20 states – including some mega states like Texas and Florida – boycotting exchanges entirely, the stakes are huge, and they will be decided by late June, less than two months from now.

If the court rules that they don’t apply and the subsidies are withdrawn, millions will forgo insurance. This will, in turn, dramatically push up premiums for everybody else currently in the Obamacare system and launch the dreaded “death spiral” that’s been a danger of the law from Day 1. Not surprisingly, the Accordable Care Act would unravel in a real hurry.

Before I go any further, let me clarify one thing: It’s not my role to pass judgement on whether Obamacare’s unravelling would be a good thing or a bad thing. In my capacity as Chief Investment Strategist for Money Morning, I don’t have that luxury.

My job is to help you find opportunities others don’t yet see and hunt down profits using tactics that give you an edge over millions of other investors who will be caught by surprise.

And as always, there will be a chance to profit from the ensuing chaos.

Now Hospitals and Health Care Giants Are Addicted to Stimulus, Too

In 2011, before Obamacare was in effect, hospitals provided $41 billion in uncompensated care from their emergency rooms. But with millions more enjoying state-subsidized insurance, that burden has been shifted from hospitals to taxpayers. That’s a massive windfall hospitals have happily gotten used to.

Health insurance companies have also reaped a bonanza, with the law now forcing millions of young, healthy Americans who might otherwise have taken a pass on health insurance to sign up for their services. Their customer base is now broader and lower-risk than ever.

No wonder that giant health insurance companies – many of whom deployed armies of lobbyists to Capitol Hill to assist in writing the health care bill – are reporting record profits from 2014, with their stock prices having risen 100%, 200%, or even 300% since the bill was signed into law in March 2010.

Having seen their market capitalizations inflate at a rate that puts the Fed-induced bull market to shame, these health care companies are dependent on the continued security that Obamacare offers them – and they know it.

King v. Burwell is so important to the string of historic quarterly earnings these companies are reporting that the mere words of the justices deciding the case right now have the power to move markets.

Last March, for example, Justice Anthony Kennedy gave an array of health care stocks a boost when he opined there was “a serious constitutional problem” with the plaintiffs’ case in their effort to strike down the subsidies. Even the largest health care companies like Aetna Inc. (NYSE:AET) and UnitedHealth Group Inc. (NYSE:UNH) saw stock bumps resulting from traders’ optimism that the law – and flow of profit-giving subsidies – would stand. A single justice’s comment moved tens of billions of dollars in market capitalization in the health care industry in one day.

If that’s what an off-the-cuff remark by one judge at the preliminary hearings can do, imagine what a plaintiff’s victory in King v. Burwell would mean. We’re talking about the judicial rebuke of the century upending trillions of dollars in investments.

It will be an extremely bitter, and this time unsubsidized, pill for the mammoth health care industry to swallow. And the resulting slump would create a legendary buying opportunity for investors looking to get in on an “Unstoppable Trend” – Medicine – on the cheap.

There are more than a few ways to play this. Here are the simplest and purest moves for your consideration.

Supreme Court Lowball Opportunity No. 1: iShares U.S. Health Care Provider (NYSEArca:IHF)

iShares U.S. Health Care Provider (NYSEArca:IHF) is an exchange-traded fund that is heavily weighted with insurance companies, including some of the biggest beneficiaries of Obamacare. It’s seen gains of more than 145% in the five years since Obamacare was signed into law, as the health insurance companies it’s tracked have thrived.

If the Supreme Court strikes down the subsidies that are so vital to Obamacare’s survival, a myriad of companies IHF tracks will see haircuts in the market capitalization, and the ETF will suffer. In fact, it’s even more likely to suffer than most individual health care companies, since its exposure is more widespread.

I believe that IHF could suffer a 20% hit if the Supreme Court surprises with its decision this June. If I’m right, that gives you a great opportunity to pick up shares at a steep discount, knowing that whatever obstacles the Supreme Court may put up in the short term, there’s no derailing the Medicine Trend for long. Congress will see to that, if only in their own self-interest.

Action to Take: Enter a lowball order to buy iShares U.S. Health Care Provider (NYSEArca:IHF) for $102.30 or less. Enter a 25% trailing stop to protect principal and profits.

Supreme Court Lowball Opportunity No. 2: UnitedHealth Group Inc. (NYSE:UNH)

Every major health insurer has something riding on the Supreme Court’s decision alter this year… but you’d be hard-pressed to find one with more skin in the game than UnitedHealth Group Inc. (NYSE:UNH).

In fact, the $10.7 billion company is so dependent on the survival of Obamacare that it even sent in a team of experts to help with website design when the national health exchanges debuted to a disastrous website launch in late 2013! Its leadership was terrified that the law which featured so rosily into their business models might not survive.

Not surprisingly, UNH has recorded historic profits under Obamacare. The already-massive company has just reported that it achieved $10.3 billion in profits in 2014 over revenue of $130.5 billion. That’s a 7% year-over-year increase from 2013, and it was impressive enough to send the company’s stock to all-time highs. Further, UNH reported $32.6 billion in revenue from Q1/2015 alone. That’s an 11.5% improvement over Q1/2014, and it meant additional profits of $494 million for the company last quarter alone.

The improvement can be traced back to the 1.6 million enrollments that UNH announced it snagged year-over-year in its Q1/2015 earnings report. That’s a major expansion of its customer base, for which it can thank the authors of Obamacare, and the individual mandate in particular.

UNH has seen an amazing 246% gain in its stock price since March 2010. If Obamacare is dealt a death blow by the Supreme Court, it will be due for a steep correction. Of course, with the $10.4 billion the company reports on its balance sheet according to Yahoo!Finance, the insurance titan will have the resources to adjust and eventually thrive again.

Action to Take: Enter a lowball order to buy shares of UnitedHealth Group Inc. (NYSE:UNH) at $85.20 or less. Enter a 25% trailing stop to protect principal and profits.

Supreme Court Lowball Opportunity No. 3: Anthem Inc. (NYSE:ANTM)

Anthem Inc. (NYSE:ANTM) is the nation’s second-largest health insurer, and the $43.3 billion company scored 1.8 million new enrollees across every front of its business in 2014. Some 815,000 of them came from the expanded Medicaid program under Obamacare.

Not unexpectedly, Anthem continues to follow the money – CEO Joe Swedish announced a plan to double down on advertising and outreach in states that have expanded Medicaid. “We are targeting future growth in 2015 and beyond,” Swedish said in a recent conference call to investors.

If Obamacare unravels, Anthem’s expanded Medicaid program will collapse alongside it – and that would mean a harsh correction for the company’s stock. But like UNH, it has the resources to withstand the shock, having reported $21.5 billion cash-on-hand in its last quarterly report, according to Yahoo!Finance.

Currently trading at around $155/share, it has a lot to lose in the short term from any judicial surprise.

Action to Take: Enter a lowball order to buy shares of Anthem Inc. (NYSE:ANTM) at $116.25 or less. Enter a 25% trailing stop to protect principal and profits.

In closing, I want to remind you that profitable investments are not about politics or philosophy. But they are absolutely about the historic wealth transfer that is inevitably created with the two collide.

Let’s make sure you’re among the winners.

Until next time,
Keith Fitz-Gerald

Source :

Money Morning/The Money Map Report

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