Why Hospital Stocks Soared

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of hospital operators Health Management Associates (NYSE: HMA  ) , HCA Holdings (NYSE: HCA  ) , and Community Health Systems (NYSE: CYH  ) all surged roughly 10% today after the Supreme Court upheld the 2010 health care overhaul law.

So what: The overhaul law expands health care coverage to more than 30 million uninsured Americans and, in turn, allows hospitals to see a much higher volume of patients. And by having more customers paying with insurance, hospitals won't have to worry as much about being stuck with unpaid bills.

Now what: Don't let today's run-up keep you from looking into the space. While hospital stocks have held up relatively well despite all of the recent health care uncertainty, the industry still averages a P/E of roughly 12. When you couple the strong revenue and margin tailwinds that today's ruling brings with the already favorable demographic trend, I'd expect that multiple to expand going forward.  

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days.

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