As I’ve covered in an article last week, meme stocks have been the talk of the Street this year. This week investors heard quite a lot about Clover Health (CLOV). CLOV is a healthcare technology company that uses its proprietary technology platform to collect, structure, and analyze health and behavioral data to improve medical outcomes and lower costs for patients.
In fact, this health insurance technology company was one of the most-discussed stocks on Reddit this week. The stock rose 20% on Tuesday and 9.5% on Wednesday as Reddit traders pushed its value up after talk of the company becoming a target of a short squeeze. Even Chamath Palihapitiya, the venture capitalist behind the company, discouraged traders from buying the stock due to being a short squeeze target.
Retail traders nonetheless kept pushing its price higher. While the company could have a great future ahead of it, I would advise investing in other health insurance stocks, as the volatile nature of CLOV's price swings may be too high for risk averse investors. Companies such as Molina Healthcare Inc. (MOH), UnitedHealth Group Inc. (UNH), and Cigna Corporation (CI) are more established and rank highly in our proprietary POWR Ratings system.
Molina Healthcare Inc. (MOH)
MOH offers healthcare plans focused on Medicaid-related solutions for low-income families and individuals. Its health plans are operated by a network of subsidiaries, each of which is licensed as a health maintenance organization, or HMO. The company also has a Medicaid Solutions segment that provides solutions to U.S. state governments for their Medicaid management information systems.
The company has seen consistent growth over the past few years. In the first quarter, total revenue soared 43.4% year over year due to increased membership in Medicaid and the Marketplace. MOH has also been gaining from a restructuring and profitability improvement plan that the company started in 2017. The plan has included streamlining its organizational structure to improve efficiency, which has resulted in lower costs.
The company is expected to see continued growth in membership due to contract wins and strategic initiatives. In addition, buyouts, such as YourCare and Magellan Health have extended the company's capabilities and expanded its geographic diversity. MOH has an overall grade of A and a Strong Buy rating in our POWR Ratings system.
The company had a Value Grade of A, which makes sense as its price to free cash flow ratio of 6.7 is well below the industry average. Plus, the company has an EV/EBITDA under 10. MOH also has a Quality Grade of B due to strong fundamentals. Its return on equity of 33.4% is high and its current ratio of 1.6 indicates the company has more than enough liquidity to handle short-term obligations.
We also provide Growth, Momentum, Stability, and Sentiment grades for MOH, which you can find here. MOH is ranked #1 in the B-rated Medical – Health Insurance industry. For more top stocks in this industry, make sure to visit this link.
UnitedHealth Group Inc. (UNH)
UNH is the largest private health insurance provider in the United States, providing medical benefits to 48 million members across its U.S. and international businesses. As a leader in employer-sponsored, self-directed, and government-backed insurance plans, the company has obtained massive scale in managed care. In addition to insurance, its Optum franchises offer everything from medical and pharmaceutical benefits to outpatient care and analytics.
In fact, Optum has become increasingly valuable to the company as it helps diversify its revenue stream. The primary growth catalysts for Optum include its pharmacy care services, care delivery, and government services. It also appears that Optum’s subsegment, OptumInsight, is poised to acquire Change Healthcare, which would help create a more technology-enabled health care platform.
Its government business, consisting of Medicaid and Medicare Advantage, is poised to see massive growth. The upcoming 2021 Medicare enrollment season should help expand its Medicare Advantage footprint as it is expected to reach an additional 3.5 million people in 300 additional counties. Plus, UNH has an overall grade of A, translating into a Strong Buy in our POWR Ratings system.
The company has a Stability Grade of A, indicating it has a history of stable growth and price performance. For instance, earnings have grown an average of 23.1% over the past five years. UNH also has a Sentiment Grade of B, which means it is well-liked by Wall Street analysts. Out of twenty-seven analysts, twenty-four rate the stock a Buy or Strong Buy.
For the rest of UNH’s grades (Growth, Value, Momentum, and Quality), click here.
UNH is ranked #2 in the same B-rated industry as MOH (Medical – Health Insurance).
Cigna Corporation (CI)
CI primarily provides pharmacy benefit management and health insurance services. Its PBM services were greatly expanded by its 2018 merger with Express Scripts and are mostly sold to health insurance plans and employers. Its largest PBM contract is with the Department of Defense. In its health insurance segment, the company mostly serves employers through self-funding arrangements but also operates in government programs, including Medicare Advantage.
The company’s sales have been rising more than 20% per year consistently over the past ten years. This has been driven by several acquisitions, the company’s operating performance, and its quality products and services. Its bottom line has also been rising over the past few years. Like MOH, CI has been growing its membership base.
This is expected to continue given the company's wide agent network and superior service, which drives enrollment in commercial market segments. In its Medicare Advantage business, the firm is gaining from product expansion and in-market growth. Plus, its 2018 acquisition of Express Scripts has given the company more tools to help clients control their healthcare costs.
CI has an overall grade of B, translating into a Buy rating in our POWR Ratings system. The company has a Value Grade of B, which isn’t surprising with a trailing P/E of 10.08 and a forward P/E of 11.44. CI also has a Sentiment Grade of B. Similar to UNH, CI is well-liked by the “Smart Crowd.” Twenty-one out of twenty-four analysts rate the stock a Buy or higher.
To gain access to all of CI’s grades, including Growth, Momentum, Stability, and Quality, click here. CI is ranked #3 in the B-rated Medical – Health Insurance industry.
CLOV shares were trading at $13.01 per share on Friday afternoon, down $0.78 (-5.66%). Year-to-date, CLOV has declined -22.42%, versus a 14.84% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. He is the Chief Value Strategist for StockNews.com and the editor of POWR Value newsletter. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers.3 Health Insurance Stocks That are Better Buys Than Clover Health appeared first on StockNews.com