Democratic Debate Returns Pulse to Health Insurance Stocks

As President Donald Trump attempts to hash out a trade deal with China at the Group of 20 (G-20) meeting in Osaka this week, Democratic presidential primary candidates went head to head debating in Miami on Wednesday, June 26, and Thursday, June 27.

Health care took front and center stage in the debate, with many investors looking for answers about how a Democrat-occupied White House would manage the nation's health care system. Of the 20 presidential hopefuls who participated in the debate over two nights, only four raised their hands when asked if they favored eliminating private health insurance. Further, party frontrunner Joe Biden said he opposes any Democrat who takes down the Affordable Care Act – otherwise known as Obamacare.

The debate's outcome helped quell fears that a universal health care system, such as Medicare-for-All, or major reform to the Affordable Care Act would take place under a Democratic commander in chief – two concerns that contributed to the S&P 500 Health Care Sector Index (^HCX) slumping by as much as 8.5% in April.

"The markets are pretty comfortable that something like a single-payer system isn't going to happen anytime soon," Ipsita Smolinski, managing director at health care research and consulting firm Capitol Street, told Reuters on the eve of the first debate.

Traders who want to bet against major reforms disrupting the health care sector should take a look at these three leading health insurance stocks that may see follow-through buying after the debate's second installment.

UnitedHealth Group Incorporated (UNH)

With a market capitalization of $234.11 billion, Dow component UnitedHealth Group Incorporated (UNH) is the largest private health insurance provider in the United States. The Minnetonka, Minnesota-based company provides employer-sponsored, self-directed, and government-backed insurance plans to roughly 50 million members. President and CEO of Strategic Wealth Partners Mark Tepper recently told CNBC that, amid the political headline risk, the health care giant is growing faster than the market but trades at a discount. The company trades at 15.5 times forward earnings, compared to a multiple of 17 for the average S&P 500 company. Although UnitedHealth is down 1.47% year to date (YTD), it is still outperforming the health care plans industry average by 3.47% and also pays a 1.77% dividend yield as of June 28, 2019.

In mid-June, the company's share price broke above a seven-month downtrend line. Since that time, the stock has pulled back to the initial breakout point, which now acts as a crucial support area. The price also finds support from a short-term uptrend line stretching back to April. Traders who open a long position should look for a move back to the December 2018 swing high at $285.58. Manage risk by placing a stop-loss order below the 50-day simple moving average (SMA) and amending it to breakeven if price closes above the 200-day SMA.

Humana Inc. (HUM)

Humana Inc. (HUM) specializes in government-sponsored programs, with the majority of its medical membership coming from individual and group Medicare Advantage, Medicaid, and TRICARE – a military health care program. The health insurer also provides stand-alone prescription drug plans for seniors enrolled in traditional fee-for-service Medicare. Humana has consistently topped analysts' forecast, exceeding earnings estimates over the past four consecutive quarters. The company has a $35.73 billion market cap, offers a 0.84% dividend yield, and is trading down 7.45% on the year as of June 28, 2019.

Humana shares trended steadily lower between November and May as investors grew more cautious about political risk out of Washington. More recently, the bulls pushed the stock above a multi-month downtrend line that may act as a catalyst for further upside in the days and weeks ahead. Traders currently have the opportunity to use a minor retracement to the trendline as an entry point. Those who take a position could scale out at key resistance levels, such as $310 and $350. Consider setting a stop just below this week's pullback.

Anthem, Inc. (ANTM)

Anthem, Inc. (ANTM) provides employer-sponsored, individual, and government-backed coverage plans to more than 40 million members. Some of the Indiana-based company's managed care plans include preferred provider organizations (PPOs), health maintenance organizations (HMOs), point-of-service plans, and traditional indemnity plans, as well as hospital-only and limited-benefit products. Anthem, which has exceeded the Street's earnings expectations over the past four consecutive quarters, said it expects full-year 2019 adjusted earnings to come in above $19.20 per share, up from its prior forecast of more than $19 per share. The $72.64 billion health care company trades at just 12 times forward earnings, issues a 1.15% dividend yield, and has gained 8.14% YTD as of June 28, 2019.

The Anthem share price completely recouped it 8.3% April loss during May and June, indicating that investors may have overreacted to Medicare-for-All fears. This week's pullback to the $280 level offers traders a high-probability entry point, with the stock finding a confluence of support from a horizontal line, the 200-day SMA, and a trendline connecting the February and March swing highs. Once in a trade, think about setting a take-profit order near the 2019 YTD high at $316.24. Implement risk management by cutting losses if the price fails to hold above the June low at $271.01 and adjusting stop orders to breakeven on a close above the June 21 high at $294.86.