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In June we got some of the biggest news in the health care industry in recent memory, with the Supreme Court effectively upholding Obamacare – aka the Affordable Care Act – by keeping the subsidies in place for the millions of members that have already enrolled.
With the rising hype around Obamacare, I’m reminded of one investor that has been plugging Obamacare stocks for several years: Larry Robbins of Glenview Capital.
Just over a year ago I profiled Robbins and some of the stocks his hedge fund was betting big on. At the time, he was focusing on companies that could take on debt at low interest rates and use that money to buy back shares.
One standout was Robbins’ Obamacare play, HCA Holdings (NYSE: HCA), an owner of hospitals. Shares are up 45% over the last year.
However, not all upside has been missed. There are a few ways to still play Obamacare, including using insurers.
Recently, Robbins has been buying up shares of the major managed-care players, Humana (NYSE: HUM) and Anthem (NYSE: ANTM). These are a couple of stocks I talked about last week in conjunction with Warren Buffett’s big commercial insurance pivot. More people purchasing insurance thanks to Obamacare is a positive for the likes of Aetna and Humana, but many of the major health care insurers have been bid up due to buyout speculation.
Instead, it’s best to stick with where Robbins made serious money last year: hospitals. Hospitals will see the immediate benefits of more patients being insured.
With that thought in mind, here are the top Obamacare-related stock picks:
Tenet Healthcare Corp. (NYSE: THC)
Tenet Healthcare is the third largest hospital operator in the U.S. Its core market is the Sun Belt states, such as Texas and California. But it’s worth noting that Florida is also a key market for Tenet, which has a high concentration of aging baby boomers.
And Tenet has been expanding its network to take advantage of the rising demand for hospital services from recent retirees. Earlier this year it decided to merge its imaging center assets with United Surgical Partners International, creating a joint venture valued north of $2.5 billion. Tenet owns 50.1% of the joint venture and can buy the whole thing within five years.
Community Health Systems (NYSE: CYH)
Community Health is the second largest hospital player, with a focus on rural markets. It’s the cheapest of the major hospital operators, trading at a forward price-earnings ratio below 14, based on next year’s earnings estimates.
Last year it completed its buyout of Health Management Associates, which added over 70 hospitals and boosted its hospital network by over 50%. We should start to see the real benefits of the synergies this year, expected to be upwards of $250 million in savings. That’s decent savings for a company generating $2.9 billion in annual EBITDA (earnings before interest, taxes, depreciation and amortization).
Now, shares of both Tenet Healthcare and Community Health are up over 15% for the last month. Yet, of the top four hospital operators in the U.S., these two haven’t enjoyed the same success over the last year as LifePoint Hospitals (NASDAQ: LPNT) and HCA Holdings in terms of share price appreciation. They are due to play catch up.
Both Tenet Healthcare and Community Health are expected to grow earnings faster than their two counterparts next year – at a 27.5% and 13.5% rate, respectively. Besides being big benefactors of Obamacare, both also happen to be top 10 holdings for Larry Robbins’ Glenview Capital.
Worry-free riches
They’re owned by some of the wealthiest people on the planet. They share a few key similarities that distinguish them from 99% of equities. Even as the S&P keeps breaking record highs, they’re still crushing it. In fact, over the last ten years they’ve outpaced it by a colossal 390%. Find out more right here.