(By Dave Goodboy) Few pieces of legislation have been as controversial as the Patient Protection and Affordability Act of 2010. Spearheaded by President Obama, the so-called Obamacare health care reform has met with much friction as it works its way into law. Those who oppose the changes assert that it provides the government with too much control over personal health care and benefits; they see Obamacare
as a step toward socialism. Proponents of the legislation believe it will lower health care costs by making it more affordable for everyone.
Clearly, there are compelling arguments for and against this health care reform. But based on the recent Supreme Court decision, it looks like the Affordable Care Act will be the new way health care is handled in the United States.
At the core of the health care change, Medicare will expand to offer coverage to more individuals. When Obamacare is fully functional in 2014, about 20 million additional people will likely participate in the Medicare program. But with states currently spending about $80 billion a year to outsource all or part of Medicare /Medicaid programs, and with more people being added to the program, these costs are projected to reach a whopping $300 billion in just five years. And to help meet this projected cost increase, the large managed-care companies will likely start to purchase other companies already in the business. On July 9, for instance, managed health care plan provider WellPoint (NYSE: WLP) revealed its intentions to buy Amerigroup (NYSE: AGP), the nation's largest private Medicaid/Medicare managed health care company for $4.9 billion. As soon as WellPoint announced this buyout, Amerigroup shares rocketed 38%.
And it's in setups like this one that savvy investors can greatly make monster money. The three stocks below are my top candidates that will likely benefit from Obamacare…
1. WellCare Health Plans (NYSE: WCG)
This Florida-based company provides managed health care services for government-sponsored programs to about 2.5 million members. It has already started to expand its business by acquisitions. The company recently announced an arrangement with Humana (NYSE: HUM), which acquired Arcadian Health Plan Inc. in April 2012. Under the arrangement, WellCare will have a select assets of Arcadian.
Looking at the stock technically, price has gapped up above the 50- and 200-day moving averages, after a solid downtrend starting in April. After July's gap higher, price remained about 28% higher so far in 2012, compared with the year-ago period. Resistance was hit around $69 a share and price has dropped back to around $65 a share. An opportunity to buy may be setting up here. The first close above $67 a share with stops at $64 would make a great strategy for this stock.
2. Centene Corp. (NYSE: CNC)
Centene has more than 2 million members in 17 states that provide Medicaid- and Medicare-related health care coverage to individuals via government-subsidized programs. Obamacare has worked wonders for this company so far. The chart below reveals the yearly low was on June 11, but the price has bounced nearly 30% higher since then. The 200-day simple moving average at $39 a share, however, has proven to be major resistance, stopping the rally cold in its tracks.
This stock may make another great breakout trade. The strategy is to buy on a close above the 200-day simple moving average with stops at $35,set with a one-year target price range of $50 to $55 a share.
3. Healthnet Inc. ( NYSE: HNT)
This giant health care company provides group, individual, Medicare, Medicaid and Veterans Affairs programs to 6 million members. It's also clearly benefiting from the Obamacare upside potential. Hitting a yearly low on July 1, shares have bounced above the 50-day simple moving average and are now about 6% off their lows. Once again, investors should use the breakout strategy with this stock . Purchasing shares on a close above $27 makes solid sense. Stops make sense at the 50-day simple moving average in the $25 range.
Risks to Consider: It's important to keep in mind that these are politically-driven plays. As you know, anything can happen in the political arena. Obamacare could get quashed or delayed should the Republicans win the Presidential election in the fall. While things are looking very positive right now for these companies, the future is far from certain. Always use stops and position size wisely when investing with these types of stocks.
Action to Take -- > I like all three of these stocks as potential breakout purchases. And breakout for these companies will likely be driven by merger and acquisition (M&A ) activity, which could create fast moves higher. If not M&A activity, then the increased business potential from Obamacare should increase the stock price organically, albeit slower than a buyout/takeover.
Having orders in place at the levels listed is how I would approach these three stocks. Should an M&A activity be announced or even rumored, the stock price will move very quickly, therefore it's critical that the orders be waiting in cue for execution.
-- Dave Goodboy
Dave Goodboy does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC does not hold positions in any securities mentioned in this article.
This article originally appeared on StreetAuthority
Author: Dave Goodboy