Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
In the middle of indecisive and disputed elections, the stock market rallied with the Dow closing at +1.3%, S&P 500 rising by 2.2%, and Nasdaq gaining 3.8%. It seems that uncertainty itself is a quality appreciated by investors. Take a look at 3 healthcare stocks that continue to rise in such an environment.
These Stocks are Climbing Despite Political Opacity
One would think that allegations of election fraud would cause a market upset, but quite the opposite occurred. While some predicted certain stocks would boom if Trump wins, and the same with Biden — the stock market is doing fine, with just a slight overnight slump noted in the US futures market. This is likely a result of the “Blue Wave” not materializing as expected. Otherwise, the market continues to soar.
This makes perfect sense if one views political events from an investor’s perspective. What do investors dislike most when it comes to elections? One side of the political aisle receiving drastically more power than the other side. In other words, investors fear that unbalanced power would grant the political party the ability to implement big changes via legislation.
As it happened, there was neither a Blue nor a Red wave. A political shift has potentially been diffused. The healthcare system is one of the biggest beneficiaries of this development. In particular, the following stocks representing the healthcare marketplace got a boost from Tuesday to today:
Of the three, UnitedHealth Group is by far the largest with a $289 billion market cap, making it 4x larger than Cigna and Anthem, with much greater revenue streams as well. Thanks to its Optum divisions (OptumHealth, OptumInsight, and OptumRx), covering the entire spectrum of healthcare services, UnitedHealth Group could be the safest investment due to superior scaling.
Obamacare Legacy Explained
The reason why healthcare insurance providers prefer close election results can likely be tracked to the controversial Affordable Care Act (ACA). It was signed into law in 2010 under President Obama’s administration, which is why it got the moniker Obamacare. This health insurance overhaul introduced an individual mandate, causing great controversy.
Because Obamacare was not designed as a voluntary proposition, but incurred fines for those who remain uninsured, the law was brought to the US Supreme Court in 2012. However, the court decided in a heavily divided 5-4 ruling that Obamacare is not unconstitutional, as a form of taxation. Nonetheless, the Obamacare penalties were so unpopular that the Trump administration eventually abolished them in 2019.
Although the oppositional GOP kept insisting they would repeal Obamacare during the entirety of the Obama administration, this never materialized outside of removing individual mandate penalties and other tweaks.
Legacy Policies Tend to Become Entrenched
This brings us to the crux of the issue. Massive leftover policies, such as Obamacare, are notoriously difficult to remove unless one side firmly gains the upper hand on election day. More importantly, Obamacare turned into a boon for the healthcare insurance sector. By the time Obama left office, premiums doubled for millions of people at the same time as 19 million people gained healthcare insurance, dropping the number of uninsured by 7.6%, from 2010 to 2017.
With neither Trump nor Biden gaining a landslide, the healthcare insurance providers can rest assured that the status quo will likely remain. Biden already stated he would expand Obamacare even further, while Trump only recently stated he would prefer the Supreme Court to end the policy. Even with the recently filled court seat, such an outcome is not very likely.
Otherwise, the Trump administration has thus far only resorted to tweaking Obamacare:
Removal of ACA subsidies to insurance companies.
Offering cheaper ACA alternatives for employer health plans.
Decreasing ACA enrollment via waivers.
Discouraging Medicaid enrollment for non-citizens.
Despite these efforts, Obamacare enrollment doesn’t appear to be dropping off significantly, still holding about 20 million insured it gained over 10 years. Taking all of this into account, regardless of what the election result ends up being, UnitedHealth Group, alongside the other two stocks, is set to benefit.
What do you think about these three healthcare stocks? Let us know in the comments section below.
Disclosure:Tim Fries has no positions in any of the stocks mentioned, and has no plans to initiate any positions within the 72 hours following the publishing of this article. This article expresses the opinions of Tim Fries. Tokenist Media LLC has no position in any of the stocks mentioned, and does not plan to initiate any positions within 72 hours of the publishing of this article. Please consult our website policy for more information.
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firms specializing in sensing, protection and control solutions.