Healthcare stocks are on the move as market participants prepare for the start of many of the provisions of the Affordable Care Act, also glibly known as Obamacare, in October. Though really it should be known as ObamaInsurance … because it’s a change in the way healthcare is paid for, not in the way it is administered.
With that fact in mind, insurance stocks are likely to take a short-term hit. Tuesday, October 1, marks the first day the health insurance exchanges will be open for business, and healthcare insurers Cigna (CI) and Wellpoint (WLP) had been expected to benefit from a slew of new enrollees. But these two stocks in particular were creamed after a couple of major companies said that they would direct their employees to less expensive options. I suspect that CI and WLP will bounce back after this panic subsides, so look for a place to buy them on the rebound.
Many of the big drug makers will also be important beneficiaries of the new law, thanks to the fact that many more people than before will be able to afford common (but relatively expensive) therapies that provide relief for common ailments, such as cardiovascular disease, ulcers, diabetes, autoimmune disease, hepatitis and the like.
And likewise on the receiving end of those prescriptions are drugstore chains such as Walgreen (WAG), CVS Caremark (CVS) and Rite Aid (RAD). RAD stock in particular has recently improved dramatically.
Look for more long trades on all of these healthcare complex stocks and more as ACA is implemented over the next few years.
Jon Markman operates the investment firm Markman Capital Insights. He also writes a daily trading newsletter, Trader’s Advantage, and CounterPoint Options, a service geared towards helping individual traders make steady, consistent profits with the VIX.
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