Top Picks 2020: Centene (CNC)

01/21/2020 5:00 am EST

Focus: HEALTHCARE

Joe Duarte

Editor, Joe Duarte In the Money Options

In 2019, Dr. Joe Duarte, editor of In the Money Options, selected Texas Instruments (TXN) as his Top Pick; the stock has risen 37%. He now highlights a healthcare insurer as a favorite conservative idea for the coming year.

The healthcare sector has the potential to be among the most pleasant surprises for 2020; Centene Corp. (CNC) is a low profile health insurer with high gain potential.

Centene has long been a sector and market laggard compared to industry giants such as UnitedHealth (UNH); the stock is now are poised to power higher in 2020.

The stock gathered some steam in late 2019 after it had been beaten down for most of the year due to election season talk of “Medicare for All,” and some merger related issues.

Yet, even as the stock was struggling, management continued to move on its business plan and they delivered some good news in early November as Centene won a big West Texas Medicaid contract in 2020 as the state of Texas terminated its arrangement with its rival Molina (MOH).

The new contract will cover two new regions for the company and broadens the company’s already existing seven contracts in the state. Furthermore, West Texas has a large Medicaid population and the contract is expected to be profitable in the short term given the number of covered members.

Moreover, if there is a decline in the West Texas oil boom, the potential for an increase in Centene's services will likely increase, a factor which could positively impact both the top and bottom lines.

As usual, it’s important to keep a market perspective on any shares owned. Yet, the company seems to be in the early stages of what could be a sizable turnaround. I would recommend an 8%-10% sell stop.  For disclosure, I own the stock as of late December 2019.

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