David Einhorn is the head of Greenlight Capital, a hedge fund. He has positioned his portfolio to benefit from a repeal of Obamacare by buying mostly health care stocks. “While the stocks are already cheap, there is the additional unpriced upside in the possibility that the election changes the political landscape, resulting in a possible modification or repeal of Obamacare,” he said in his second quarter letter.
Einhorn bought 6,435,000 shares of CIGNA (CN) in the second quarter of 2012 at an average price of $46. Cigna’s stock has declined almost 8% over the last five years.
CIGNA Corporation is an investor-owned global health services benefits organizations in the U.S. CIGNA a Corporation has a market cap of $12.63 billion; its shares were traded at around $43.6 with a P/E ratio of 8.7 and P/S ratio of 0.6. The dividend yield of CIGNA Corporation stocks is 0.1%. CIGNA a Corporation had an annual average earnings growth of 9.2% over the past five years.
Einhorn wrote in his second quarter letter: “CI is a managed care company with three primary divisions: Cigna HealthCare, Cigna Group Disability and Life, and Cigna International. Cigna HealthCare, which comprises about 70% of CI's profits, offers medium and large companies traditional risk-based insurance, in addition to administering plans for those that prefer to self-insure. Cigna HealthCare recently bought HealthSpring to enter the fast-growing Medicare Advantage market. Cigna Group Disability and Life is a low-growth, stable business. Cigna International, which provides insurance policies for individuals, as well as insurance and administrative services for multinational companies and governments, is growing at more than 20% per year. We believe that CI deserves a higher multiple because the plan administration business is a service business that doesn't take risk, and the other divisions do not warrant discounted values. Our purchase price of $45.42 per share valued CI at less than 8x estimated 2012 EPS and approximately 6x our forecast of post Obamacare 2014 EPS. CI shares closed the quarter at $44.00 each.”
Einhorn bought 6,660,000 shares of Coventry Health Care (CVH) at an average price of $32 in the second quarter of 2012.
Coventry Health Care Inc. is a managed health care company operating health plans under the names Coventry Health Care, Coventry Health and Life, HealthAmerica, HealthAssurance, HealthCare USA, Group Health Plan, SouthCare, Southern Health, Carelink Health Plans and WellPath. Coventry Health Care, Inc. has a market cap of $4.64 billion; its shares were traded at around $32.29 with a P/E ratio of 11.9 and P/S ratio of 0.4. The dividend yield of Coventry Health Care Inc. stocks is 1.5%. Coventry Health Care Inc. had an annual average earnings growth of 17.8% over the past 10 years.
Einhorn mentioned Coventry Health Care and Cigna in his second-quarter letter: “The Partnerships established several substantial new positions in the managed care sector, including Cigna (CI) and Coventry Health Care (CVH). The entire sector had been battered in anticipation of Obamacare. For the most part, these companies have unlevered balance sheets and trade at single-digit P/E multiples on earnings that should continue to grow. They have no exposure to the European currency crisis, a possible Chinese slowdown or other cyclical headwinds. While the stocks are already cheap, there is the additional unpriced upside in the possibility that the election changes the political landscape, resulting in a possible modification or repeal of Obamacare.”
He continued about CVH: “CVH is a regional managed care company with operations in the mid-Atlantic, Midwest and parts of the South. The company offers commercial risk-based insurance and has an expanding business in the government-sponsored Medicaid and Medicare programs. Problems with a recently-acquired three-year contract to provide managed care services to the Medicaid population in Kentucky caused the company to significantly reduce earnings guidance for 2012. This led to a large drop in the stock price. We believe the issues related to the Kentucky contract are manageable and finite, and CVH will return to breakeven or a profit on this contract in 2013 from a loss this year. Our average purchase price of $31.22 represents 8x our forecast for 2014 earnings net of $6 per share of cash and reflects our estimate of the negative impact of Obamacare. CVH closed the quarter at $31.79 per share.”
Einhorn bought 2,285,000 shares of UnitedHealth Group (UNH) at an average price of $57 in the second quarter.
UnitedHealth Group Inc. offers health care coverage and related services to help people achieve improved health and well-being through all stages of life. UnitedHealth Group Inc. has a market cap of $53.85 billion; its shares were traded at around $51.91 with a P/E ratio of 10.6 and P/S ratio of 0.5. The dividend yield of UnitedHealth Group Inc. stocks is 1.6%. UnitedHealth Group Inc. had an annual average earnings growth of 18.2% over the past 10 years. GuruFocus rated UnitedHealth Group Inc. the business predictability rank of 3.5-star.
Einhorn bought 1,645,000 shares of Humana (HUM) at an average price of $82. The stock has dropped 19% since.
Humana Inc. is a health services company that facilitates the delivery of health care services through networks of providers to its medical members. Humana Inc. has a market cap of $11.03 billion; its shares were traded at around $66.59 with a P/E ratio of 9.1 and P/S ratio of 0.3. The dividend yield of Humana Inc. stocks is 1.5%. Humana Inc. had an annual average earnings growth of 23.5% over the past 10 years. GuruFocus rated Humana Inc. the business predictability rank of 5-star.
Einhorn bought 1,930,689 shares of WellPoint (WLP) at an average price of $67 in the second quarter.
WellPoint Inc. is the largest publicly traded commercial health benefits company in terms of membership in the United States. WellPoint Inc. has a market cap of $19.16 billion; its shares were traded at around $56.89 with a P/E ratio of 8.1 and P/S ratio of 0.3. The dividend yield of WellPoint Inc. stocks is 2%. WellPoint Inc. had an annual average earnings growth of 17.2% over the past 10 years. GuruFocus rated WellPoint Inc. the business predictability rank of 4-star.