Why Humana, Inc. Shares Delivered Healthy Gains

Humana shares soar following the release of a favorable report from the Department of Health and Human Services. Should you buy this rally or stick to the sidelines?

Feb 24, 2014 at 4:09PM

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 Humana (NYSE:HUM) a health care company which provides a range of insurance products across the country, jumped as much as 12% after the U.S. Department of Health and Human Services released its 2015 proposal for Medicare Advantage funding on Friday and Humana released an SEC filing today.

So what: According to a proposal released by the HHS, Medicare Advantage rates are expected to fall by just 3.5% to 4% in 2015. Humana, which derives close to two-thirds of its business from Medicare Advantage, a supplemental insurance purchased by seniors to help defray costs not covered by Medicare, noted in today's regulatory filing that this decrease is significantly below the 6% to 7% decline that it had anticipated. Although insurers have 45 days to add their opinion on the HHS' release, I doubt Humana will be doing much in the way of disagreeing with its proposed cuts.

Now what: This is certainly great news for Humana which derives a majority of its revenue and profit from Medicare Advantage. We as investors know that the likelihood of ongoing Medicare cuts is high, so anything better than the worst case scenario presented by insurers is a good thing. However, at 13 times forward earnings, I'm a bit leery of Humana's potential, especially considering that its long-term reimbursement rates are likely headed lower.

Humana shares may be off to the races today, but they'll likely have a hard time keeping up with this top stock in 2014
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Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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