Managed Care Stocks Might Be The Best Defense Against Market Volatility

In a new report, Leerink analyst Ana Gupte offered one possible source of value following the recent market selloff: managed care stocks. Gupte sees further upside from many names in the space following big Q2 earnings beats.

‘Beats And Raises’

All year, managed care stocks have been consistently beating earnings expectations and raising guidance, and Q2 was no exception. By Leerink’s count, 9 out of 11 companies beat consensus earnings expectations, and 7 out of 10 that issue guidance raised their targets.

Gupte notes that Cigna Corp (NYSE: CI), Anthem Inc (NYSE: ANTM) and Aetna Inc (NYSE: AET) produced particularly strong results. WellCare Health Plans Inc (NYSE: WCG) and Molina Healthcare Inc (NYSE: MOH) were two leaders among small caps in the quarter.

The Numbers

Gupte sees strong fundamentals for managed care stocks, including a 0.3 percent year-over-year (Y/Y) improvement in consolidated medical loss ratio (MLR) in Q2. Administrative expense ratios (SG&A) were also surprisingly good in Q2, improving 0.6 percent Y/Y and 0.9 percent Q/Q. Magellan Health Inc (NASDAQ: MGLN), Humana Inc (NYSE: HUM), Cigna and Anthem demonstrated the most Y/Y improvement in SG&A.

Strong Buying Opportunity

Gupte is bullish on managed care stocks and believes that they offer a safe haven for value investors during this market pullback.

“The sector provides macro defense against oil prices, interest rate hikes and the Chinese economic slowdown and provides a buying opportunity amid the market carnage, in our view,” she writes.

Leerink in bullish on the entire managed care space, but names Anthem and Aetna as its top two picks.