So, if you had to choose between two giant healthcare stocks — UnitedHealth Group Inc. (NYSE:UNH) and Anthem Inc (NYSE:ANTM) — which would it be?
Is there really that much of a difference? Both are leading healthcare stocks and both have been doing very well. ANTM has a slightly better price-to-earnings ratio — 16 to 19 and its stock has done better slightly better in the past year.
Both companies are massive players in the healthcare sector, but how they are building their companies for the future is the differentiator.
There are two major trends happening for healthcare stocks right now, both thanks to the Affordable Care Act.
Now, regardless of your opinion of Obamacare in general, the fact is, that major shifts in national policy signal huge opportunities for large companies that are able to capitalize on these shifts on a national level, and smart niche players that can offer unique solutions to new challenges.
You can also add to that the fact that some of these large players will also snap up some of these smaller players to increase their ability to profit from the new playing field.
In the case at hand, UNH has chosen to expanding its technology base, while ANTM has chosen to expand its customer base.
Healthcare Stocks Showdown: UNH
UNH has spent the past few years focused on growing its IT base and systems to be able to offer better solutions to its professional services clients as well as individual customers. The key aspect here is EMRs (electronic medical records).
All healthcare providers are mandated to transition to EMRs in coming years and this is an enormous commitment of time, money and labor. This alone is changing the face of the current healthcare system, as smaller players can’t afford the conversion and look to merge with larger networks that can foot the bill.
For insurers it means they can offer services to healthcare providers in conversion, maintenance and analysis of the provider’s health records to maximize their operations. They can also help the providers assure payment from insurers and state and federal government for their services.
And most importantly, they can provide this information in the securest environment possible.
This is path UNH is taking to growth. The risk here is, where does the growth come from when all the records have been converted over and there is a new breed of EMR management firms that can do UNH’s job better and cheaper?
Healthcare Stocks Showdown: ANTM
If you recall the massive data breach Anthem — and 69 million of its clients — experienced earlier this year, you’ll know that ANTM isn’t looking for growth in the IT arena.
ANTM is looking for people. If the federal government is moving toward universal coverage for all its citizens, then finding a way to get as many people enrolled in health insurance as possible puts you on a parallel path with nation’s most powerful employer and engine of growth.
To be sure, ANTM’s bet on building its base has paid off handsomely up to now. But can it keep growing this way for much longer. Plus, data breach shows that ANTM hasn’t done a great job unifying all the systems of its acquisition targets into one secure database; there may be other back doors left in some of these smaller systems that gave hackers access to the big prize of ANTM’s main database of names.
And if lawsuits question ANTM’s liability in any of this, it could mean an unwanted diversion from its intended growth path. But that is all speculation.
Healthcare Stocks Showdown: The Verdict
So, in our smackdown duel betwn UNH and ANTM, do we have a winner?
No, not really. It’s hard to go wrong with either of these healthcare stocks for the next few years. But after that, you simply have to ask yourself whether you see more growth in the tech side of healthcare management or the subscriber side.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
