HMO Stocks for Healthy Profits

An industry group with surprisingly steady profits from several players is that of HMOs. Big cap names like WellPoint (WLP - Analyst Report), Humana (HUM - Analyst Report), and Aetna (AET - Analyst Report) have all experienced frequent periods of upward earnings estimate revisions in the past year and watched their share prices surge 40% to 80%.

Even the giant UnitedHealth Group (UNH - Analyst Report), with a $55 billion market cap, has gone from $30 to $50 since the correction lows last summer on the back of double-digit earnings growth and surprises.

12th Out of 265 Industries

There are 18 companies in the Zacks HMO Industry group and, collectively, they have such strong earnings growth that they take the number 12 spot among 264 other groups. On Monday, there were five companies with the coveted Zacks #1 Rank (strong buy) including Humana and WellPoint, which just got bumped down to a #3 Rank (hold) today.

A handful of mid cap and small cap names in this space have also done well and may still be worth watching. They are listed below with market cap, forward P/E multiple, and performance.

Amerigroup (AGP - Snapshot Report): $3.3 billion, 15 P/E; stock has consistently been a Zacks #1 or #2 Rank since August 2010 and it has doubled from $35 to $70.

WellCare Health Plans (WCG - Snapshot Report): $2.1 billion, 13 P/E; stock has doubled from $25 to $50 since last July while earning a Zacks #2 or #3 Rank, with occasional #1 showings.

Magellan Health Services (MGLN - Snapshot Report): $1.7 billion, 14.5 P/E; stock has moved from $35 to just over $50 in past year and recently began earning Zacks #1 and #2 Ranks since April.

Coventry Health Care (CVH - Analyst Report): $5 billion, P/E of 12; stock has consistently earned a #2 or #3 Zacks Rank, with occasional #1 showings in past year, and went from $17 to $35.

Part of Healthy Portfolio?

Based on the across-the-board outperformance of this group, it seems a solid HMO or two could find a welcome place in one's investments. Investors may want to consider a reliable large cap name and a higher-growth mid or small cap entrant.

The key to stock selection may rest with a combination of timing and successful identification of earnings growth and momentum. To get a quick and easy read on those profit metrics, you have to look no further than the Zacks Rank every day.

Kevin Cook is a Senior Stock Strategist with Zacks.com

Read the full analyst report on UNH

Read the full analyst report on HUM

Read the full analyst report on AGP

Read the full analyst report on WLP

Read the full analyst report on WCG