Signed into law by President Obama on March 23, 2010, the
Affordable Care Act is now headed quickly toward some important
dates. The first is Oct. 1, when the Health Insurance Marketplace,
a new portal for Americans to shop for health insurance, opens.
Then, on Jan. 1, 2014, coverage for those who signed up for a plan
in the marketplace begins.
Certainly the new government mandated program will change the
playing field for the health care industry in a dramatic way. The
new law requires all Americans to purchase an insurance policy or
face a fine. Currently about 15% of the population is uninsured,
and 50,000 Americans with pre-existing conditions who were
previously denied coverage will have access to a special plan. The
law will also prevent insurers from placing lifetime dollar limits
on more than 105 million Americans, and 3.1 million young adults
have gained coverage already through a provision that extends the
length of time they can remain on their parents' health insurance
plan, according to Whitehouse.gov.
What does this mean for investors? With many more people becoming
insured en masse, health insurers and drug companies may see
increased business. The
Vanguard Health Care Fund
, a fund followed by GuruFocus, said in its second quarter letter
that it is positioning itself accordingly:
"Holdings among health insurers, in particular, helped boost
performance. The advisor has made substantial investments in these
companies, seeing their shares as attractively valued. Insurers may
also benefit over time, if, as expected, more people receive
coverage as a result of the Affordable Care Act. As of July 31,
almost 13% of the fund was invested in the stocks of health
insurance or managed care companies, more than double the
allocation in the benchmark."
Here is a look at the stocks from the health care sector that the
most investors tracked by GuruFocus bought in the second quarter,
ahead of the implementation of the government's new rules.
The most-bought stocks were Aetna Inc. (
), Gilead Sciences Inc. (
), Merck & Co. (
) and UnitedHealth Group Inc. (
(These results were found using the All-in-One screener.)
Aetna Inc. (
Eleven gurus bought Aetna shares in the second quarter, four of
which were new positions:
and Mark Hillman.
David Einhorn holds the largest position, with 1.81% of the
company's outstanding shares. Paul Tudor Jones made the greatest
increase, expanding his position by 1,282.7%, bringing it to
Aetna's share price has traded up almost 64% over the past 12
months, hitting $64.78 in after-hours trading Thursday. The price
is just shy of a 10-year peak.
Aetna is a health care benefits company with more than 36.4 million
customers, selling a variety of health insurance plans. It is
divided in three segments: Health Care, Group Insurance and Large
The company has a five-year revenue per share growth rate of 12.1%
and EBITDA growth rate of 21.9%. Its P/E is 12.9, P/B is 1.8 and
P/S is 0.55%, which is close to a three-year high.
In the second quarter, Aetna reported 17% year-over-year earnings
growth to $536 million, or $1.49 per share. Operating revenues rose
31% year over year to $11.56 billion, boosted by higher health care
premiums in each of its commercial, Medicare and Medicaid
businesses, growth in its Medicare membership, and the acquisitions
of Coventry Health Care completed May 7.
Strong growth enabled the company to raise its full-year operating
earnings guidance to a range of $5.80 to $5.90, a 14% increase for
Get a long-term view of Aetna's earnings and revenue growth in the
quarterly chart below:
Gilead Sciences Inc. (
Twelve gurus bought Gilead Sciences in the second quarter,
including eight staking new positions: Julian Robertson, Paul Tudor
Jones, George Soros, Ken Fisher, Andreas Halvorsen, Ronald
Muhlenkamp, Jim Simons and Bruce Kovner.
The largest position is held by the Vanguard Health Care Fund, with
0.44% of shares outstanding. Steven Cohen made the largest increase
to his holding, boosting it by 843.9%, or 2,066,272 shares. He
ended the quarter with a total of 2,311,133 shares.
Investors drove Gilead Sciences' stock up 85% over 12 months, to
$62.80 after hours Thursday - near a 10-year high.
Gilead is a commercial drug company focusing on treatments for
HIV/AIDs, liver diseases and cardiovascular and metabolic and
The company has a five-year revenue per share growth rate of 21.2%
and EBITDA per share growth rate of 16.2%. Its P/E and P/B ratios
are 35.3 and 8.6, respectively. Its P/S ratio is near a five-year
high at 10.18.
David Rolfe of Wedgewood Partners comments on his trim of his
position in his third quarter 2012 letter:
Gilead Sciences (GILD
) was among our top performers during the third quarter. We
believe that the stock's strong performance over the past three
months, as well as the past year is quite warranted, as the company
is on the cutting edge in developing a cure for the hepatitis C
virus (HCV). The Company's journey down this path began last
November with their $11 billion purchase of Pharmasset, Inc.
Pharmasset's flagship drug candidate (PSI-7977, now GS-7977) is
undergoing trials indicated for all-oral treatment of HCV and if
ultimately approved by the FDA, Gilead could possess a multi-year,
multi-billion dollar revenue opportunity. We believe that the
market, more recently, has better recognized this opportunity, so
we trimmed our positions during the quarter
In the second quarter, the company reported a 15% year-over-year
revenue increase to $2.77 billion, with product sales increasing
14%. Product sales were led by its antiviral franchise, which
launched a new drug, Stribild, in the third quarter of 2012. Net
income also grew 8.6% to $772.6 million, or $0.46 per diluted
See Gilead's 10-year revenue and net income growth below:
Merck & Co. (
Fifteen gurus bought Merck shares in the second quarter, with three
starting new positions: Bruce Kovner, Mark Hillman and George
Dodge & Cox holds the largest position, with 1.73% of shares
outstanding. James Barrow had the most buying activity, increasing
his holding by 134.9%, or 16,835,178 shares. This brought his total
position size to 29,318,754 shares of 2.3% of his total assets
Merck's share price climbed about 6% over the past 12 months, to
reach $47.68 per share after hours Thursday.
A global health care company, Merck operates in prescription
medicines, vaccines, animal health, consumer care products and
other areas of health, through four segments: Pharmaceutical,
Animal Health, Consumer Care and Alliances.
In the second quarter, the company reported sales of $11 billion,
down from $12.3 billion the prior-year quarter, and GAAP net income
of $906 million, down from $1.79 billion the prior-year quarter.
The decline in sales resulted from patent expirations and foreign
exchange. Pharmaceutical sales declined 12%. Growth occurred in its
vaccines, diabetes and immunology franchises, and in seven of its
10 top products.
The company reaffirmed its 2013 GAAP EPS target of between $1.84
and $2.05, and a 5% to 6% decline in sales.
See Merck's 10-year revenue and earnings history below:
UnitedHealth Group Inc. (
Fourteen gurus increased their positions in United Health Group in
the second quarter, with three taking new positions: Ken Heebner,
Dodge & Cox and Louis Moore Bacon.
The Vanguard Health Fund has the largest stake, at 1.96% of shares
outstanding. Chris Davis made the largest increase, bringing up his
stake almost 81%, with 6,588,559 new shares. His total position
stood at 14,750,586 at quarter-end.
Over the past 12 months, UnitedHealth Group stock gained almost
28%, landing at $71.75 on Friday. Currently it is near a 10-year
UnitedHealth Group is a diversified health care company operating
in two platforms: UnitedHealthcare, offering health care coverage
and benefits services; and Optum, offering health services through
information and technology. It has 85 million clients and
operations in 20 countries outside the U.S.
In the second quarter, UnitedHealth Group revenue rose 12% year
over year to $30.4 billion. Net earnings increased 10% year over
year to $1.40. The company experienced robust membership growth
across its enterprise in the second quarter, reporting 10% more
organic enrollment or 4 million new customers combined across its
commercial, Medicare, Medicaid and international market segments.
Its strong economic position allowed the board to increase the
quarterly dividend by 32% to $1.12 per share annually, and expand
the share repurchase authorization to 110 million shares over time.
Projections for 2013 were reaffirmed, with the company expecting
$112 billion in revenues, compared to $110.6 billion in 2012, and
net earnings per share in a range of $5.35 to $5.50, compared to
earnings per share of $5.28 in 2012.
UnitedHealth trades at a P/E of 13.6, P/B of 2.3 and P/S of 0.62,
close to a five-year high.
See its 10-year revenue and earnings growth on a quarterly basis
for 10 years below:
To see more health care stocks bought, sold and held by investing
gurus, try the All-in-One screener here. It is a Premium feature,
but you can become a Premium Member here.About GuruFocus:
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