The Affordable Care Act's second open enrollment period ends today, and that has our Motley Fool experts combing through their favorite names to find stocks most likely to benefit from an increasingly insured America. Read on to learn which three companies our experts think could soar thanks to Obamacare.
Selena Maranjian: The Affordable Care Act is shaking up the healthcare landscape a bit for investors. One company that should profit from it is Express Scripts Holding Company (NASDAQ:ESRX), the giant pharmacy benefits manager, or PBM. The reason is simple: Obamacare is driving more Americans into the care of medical professionals. Recent enrollment numbers for 2015 were close to 10 million.
Millions of newly-insured Americans mean millions of new customers for doctors, healthcare facilities, drugmakers -- and PBMs. And since many of these folks had been without care for a while, many are likely to require more than an average level of care. Conditions that have gone undiagnosed and/or untreated may have worsened, leading to the need for more extensive treatments once they finally get attention.
Enter Express Scripts, whose stock has averaged annual growth of 24.6% over the past 20 years. It serves tens of millions of customers and manages more than a billion of their prescriptions, and new customers are very likely to boost its top and bottom lines. And it has already been doing well, with revenue and free cash flow just about doubling since 2011, though net income hasn't quite kept pace. Express Scripts serves other healthcare-related companies well, too, collecting tens of billions of dollars from payers as it uses its size to negotiate lower drug prices for its customers and promotes the use of generic drugs, among other things. As our population grows and ages, and as Obamacare keeps adding to customer rolls, Express Scripts is poised to grow as well.
Dan Caplinger: One stock that most people would never think of as being a potential beneficiary from the Affordable Care Act is H&R Block (NYSE:HRB). Yet the tax-preparation specialist has a lot to be thankful for because of Obamacare, since taxpayers will face their first go-round at dealing with some new tax forms this tax season as a result of healthcare reform.
Specifically, many taxpayers will need professional help with calculating how much their subsidies under Obamacare should be. Most people covered under the Affordable Care Act have received advance payments of premium subsidies based on estimates of their income, but many of them will have to complete a new and complicated form to reconcile the subsidies they received with what they should have received based on what their actual income turned out to be. In addition, those who don't have qualifying health coverage will have to calculate the appropriate penalty under Obamacare, or complete a form and some related worksheets to determine whether they're exempt from the law's requirements. Although many taxpayers could complete these forms themselves, all the added complexity is a tax preparer's dream come true, and H&R Block should expect to reap big rewards from a new wave of customers as a result.
Matt Frankel: I think the Affordable Care Act will have a positive impact on virtually all areas of the healthcare industry. More people will be able to afford prescriptions and go to a hospital when they're sick, and insurance companies will see a sharp increase in premium income.
So instead of picking an individual stock, my favorite way to play Obamacare (or any large-scale industry trend like this) is with an ETF, such as the Health Care Select Sector SPDR Fund (NYSEMKT:XLV). This gives me exposure to all of the biggest and best names of the industry, without being too susceptible to the performance of any one of them.
Among the fund's biggest holdings are Johnson & Johnson, Pfizer, Merck, and Gilead Sciences. The fund allows me to profit from increased sales of medical equipment, pharmaceuticals, and healthcare services, while also allowing me to benefit from growth in biotechnology and breakthroughs in healthcare technology.
When I read over the list of the fund's top 10 holdings, I see that they're all companies I would consider for my own portfolio. So why not buy them all?
Dan Caplinger has no position in any stocks mentioned. Matthew Frankel has no position in any stocks mentioned. Selena Maranjian owns shares of Express Scripts, Gilead Sciences, and Johnson & Johnson. The Motley Fool recommends Express Scripts, Gilead Sciences, and Johnson & Johnson. The Motley Fool owns shares of Express Scripts, Gilead Sciences, and Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.