I caught some flak for this recent assessment of the one stock to buy if Obamacare looks destined to fail. Indeed, one reader wrote in to say that I "suck as a human being." Reading between that line, I think the point was that, at least in my write-up, I wasn’t sufficiently sympathetic to the cause of health-insurance reform.
To which I say …
Indeed, my point was that the then-emerging reform seemed pretty toothless, particularly in terms of cost controls. A logical, non-sucky inference: If that kind of "reform" passed, insurance-industry stalwarts like WellPoint (NYSE: WLP ) , Aetna (NYSE: AET ) , and UnitedHealth Group (NYSE: UNH ) would likely benefit.
And good for them.
I, too, have a hot opinion about the way health-insurance reform ought to proceed. My job as your friendly neighborhood Foolish stock analyst, however, is to point out opportunities where they exist -- not just where I'd like them to be. All the above are smartly managed businesses, and each is poised to profit if -- as seems likely -- reform includes a mandate that would require even the young and the healthy to buy insurance.
Plain and simple, that's just a massive win for the insurance industry.
In recent days, though, the previously left-for-dead public option has re-entered the conversation and will apparently be in both the House and Senate versions of health-care legislation. To which I say: hooray. If such an option becomes the law of the land, the industry will get its new, highly desirable clientele. We health-insurance consumers, meanwhile, will get a cost-control mechanism with teeth.
Summertime town-hall heat notwithstanding, I think that'll be a proverbial win-win scenario, though in the near term it alters the investment-opportunity landscape.
Two for one
Should it pass, the inclusion of a public option will probably create two investment opportunities.
First, because cautious-to-a-fault fund managers frequently stick close to the market's sector weights, billions of fund-money dollars will likely stay in health care even if managers trade out of insurers. Against a backdrop that features a rickety economy and a rally that's created a huge valuation chasm between racy plays and buttoned-down fare, Johnson & Johnson (NYSE: JNJ ) seems like an easy layup to me.
With price-to-cash flow and price-to-earnings multiples well below the company's five-year average, the broadly diversified JNJ provides a no-brainer safe haven for harried fund managers looking to preserve gains as an extraordinary year winds down. Bonuses are at stake, people!
A similar, if growthier, case can be made for biotech behemoths Amgen (NYSE: AMGN ) and Gilead Sciences (NYSE: GILD ) . Each also trades at discounts to historical P/E and P/CF multiples, and both will look inviting to money managers in search of a soft landing. They're high-quality, name-brand companies that lots of those managers' buddies probably own, too.
What a Fool believes
As Peter Lynch explained, individual investors have massive advantages over Wall Street big boys, a group that looks small in light of its herd mentality and CYA thinking. Indeed, that dynamic creates opportunities for Fools like us, leading directly to the second of our two investment opportunities: inVentiv Health (Nasdaq: VTIV ) , a company that aims to help its well-heeled clientele of health-care concerns control costs. Those customers outsource to inVentiv tasks that are cost centers for them, but which are revenue centers for this small-cap up-and-comer.
The company is therefore my favorite pick for an Obamacare public option PASS, and it looks dirt cheap right now, too. Even better, while I think inVentiv is a smart play whether we get real-deal cost controls this time around or not (those are coming, one way or another), a public option could provide quite a stock-price catalyst if one materializes.
And speaking of stock prices ...
The Foolish bottom line
inVentiv has gained 48% since May, when it was tapped for recommendation at Stock Advisor, the Fool service where Tom and David Gardner duke it out each month with two new investment ideas. The brothers have been at it -- in a friendly, sibling-rivalry sort of way -- since 2002, and Stock Advisor's track record speaks for itself: David is up on the market by more than 60 percentage points; Tom has sailed past it by 35 points.
If you'd like to sneak a peek at all their picks -- including a special focus on of those the bros currently like best -- click here for a 100% free 30-day guest pass. The service is fun, informative and chock-full of compelling investment ideas. There's no obligation to stick around if you find it's not for you, so click here to give it a go. It could be just what the doctor ordered.
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Shannon Zimmerman runs point on the Fool's Duke Street and Ready Made Millionaire services, and he runs off at the mouth each week on Motley Fool Money, the Fool's fast 'n' furious podcast. Shannon doesn’t own any of the companies mentioned. Johnson & Johnson is an Income Investor recommendation. UnitedHealth Group and WellPoint are Inside Value picks. UnitedHealth Group and inVentiv are Stock Advisor selections. inVentiv is also a Motley Fool Hidden Gems selection. The Fool owns shares of UnitedHealth Group and inVentiv. You can check out the Fool's strict disclosure policy right here.