Extended markets ran into resistance where expected this week, within the Sept. S&P 2810-2820 (S...
Healthy Returns from Obamacare
08/21/2012 10:00 am EST
With millions soon joining insurance rolls, this drug benefits giant is poised to profit, says Paul Larson, editor of Morningstar StockInvestor.
Investors and health-care reform: what's the connection? I'm Ray Collins. We're talking now to Paul Larson from Morningstar. Paul, thanks for being here.
Thanks for having me.
How will health-care reform affect investors? What should they be thinking about right now?
Well, we think that health-care reform is going to actually be quite a positive for investors. While the government is going to do its best to control prices and raise taxes on certain areas of health-care reform, we're going to have a large numbers-tens of millions additional Americans-that now have health insurance, versus before the health-care reform, they didn't have insurance.
So while prices are probably going to be lower than they otherwise would have been without health-care reform, for the companies that serve the population, it's going to be a much larger customer base that they're going to be serving. So lower prices, but much higher volumes.
Is there a particular stock that would benefit the most from health-care reform?
Well, one stock that actually has quite a tailwind right now in terms of health care is a pharmacy benefit manager called Express Scripts (ESRX). This is a company that manages the prescription benefits that companies give to their employees, encouraging them to get their prescriptions through the mail, also consolidating buyer power.
This is an industry where scale really matters. Express Scripts just merged with another company called Medco, and now Express Scripts is twice as large as the next largest company in an industry where scaling matters incredibly. So we think that Express Scripts, thanks to this merger, has what we at Morningstar call a wide economic moat.
Meanwhile, it's only trading at 12 or 13 times forward earnings. And we think it's going to grow quite nicely, both because of overall health-care spending going up, as well as the tailwind of employers looking to curtail their overall health-care costs.
Is health care a matter of when, not if?
It is going to happen. I think it's going to be an uphill challenge to get parts of Obamacare rolled back. So we think that it's here to stay.
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