I hate the term Obamacare. It’s the Affordable Care Act, often called Obamacare by those who want to demonize the president. What do you, as a trader, need to understand about the ACA? You can make some serious money in health care stocks.
The central premise and promise of the ACA is that more people – more than 40 million more people – will now have access to health care coverage via private health insurance or Medicaid. This increase in volume is already built into the price of health care stocks I avoid – the regulated insurers and hospitals and other direct health care providers. I do not believe the increase in covered lives – that is what insurance companies call Americans with insurance - is built into the price of select health care product suppliers. These are drug companies, device companies, gauze and needle suppliers and so on. I like two right here as they are totally under the radar of analysts looking at ACA winners. The impact of the ACA will take several quarters to play out but once the Obamacare haters on Capitol Hill get past their charade of de-funding the ACA – this is not going to happen – Wall Street will again focus on the legislation and its impact in 2014.
Gilead Sciences (GILD) is the world leader in HIV treatments and has other drugs for various maladies such as hypertension and pulmonary disease. It is, arguably, the best managed drug company on the planet and the stock is enjoying a strong move upward. Why Gilead now? I believe a good number of potential Gilead drug users are coming on to the Medicaid rolls – and this increase is not factored into the stock price. I like selling puts to generate income – that is what I do in my service Options Income Blueprint. Take a look at the September or the October $62.50 strike, and sell GILD September puts. They expire in a few trading days, and you can net more than one percent in a week or so – that is at least 35%-45% on an annualized basis.
Thoratec (THOR) makes artificial hearts – no Dick Cheney jokes please – that cost a huge amount of money. These devices are used as a bridge to a heart transplant and for patients suffering from heart failure and do not qualify for a transplant. I believe the large expansion of Medicaid will lead to increased implantation of Thoratec’s Heartmate devices. And you do not need a large boost in sales to move the needle on sales, earnings and the stock. Again, I like a strategy of selling puts. THOR puts do not trade in volume so you need to be patient, but you could get as much as a $1.50 for a THOR October $36 put. Spreads on the bid and ask at that strike price are huge, but even so, you could produce an annualized return north of 30%.
When your friends start regaling with you with rants about Obamacare and how it will lead to a permanent decline in Western Civilization and is part of a Communist and Martian plot to take over the United States, excuse yourself from the room, check out these possibilities and start making money from other people’s ignorance.
As of publication, Michael Shulman held shares in GILD and THOR.
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