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3 HMO Stocks That Outperformed the S&P Index in a Year's Time

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The health insurance industry more popularly called Health Maintenance Organization (HMO) has been gaining from mergers and acquisitions, solid revenues, investments in technology, diversified businesses, contract wins, strong Medicaid and Medicare businesses and cost-curbing measures.

The companies delivered solid results in the first half of the year, which even made some of the leading insurers hike their 2021 guidance.

The industry players are also constantly forging alliances to penetrate geographies and meet demands of the market. Other constant factors, such as aging U.S. population, solvency levels and demand for Medicare poise the industry participants well for growth. Full government backing related to the Affordable Care Act also helped the industry gain a sweet spot.

This reform instituted by the then President Barack Obama back in March 2010, has been one of the major drivers for the industry despite inducing some challenges. And the current President Joe Biden continued supporting ACA, which came as a welcoming relief to the industry players. The government’s support for the ACA is aimed at bringing more Americans under the health insurance coverage. This will directly buoy the health insurers’ top line.

Further Upside Left?

The overall bullish scenario makes us optimistic about the health insurance industry’s consistent growth, which should boost prospects of its participating companies with sound business fundamentals.

Here are some of the factors that will positively impact the companies.

Consistent With Mergers & Acquisitions Strategy: The health insurers continue to intensify their focus on the M&A strategy, which helped them boost their business scale and expand their presence. These initiatives led to an improved quality of care and brought about diversification benefits.

Growing Senior Population: With aging population in the United States and seniors accounting for a higher percentage of the total population, overall demand for health insurance among the aged will soar. Medicare Advantage (MA) is the private version of the government Medicare program. MA plans are attractive to seniors on the back of declining member premiums, new benefits and less attractive medigap options.

Increased Automation:  The industry also joined the movement of digital revolution by embracing cutting-edge technology for operational use. It was slow in this transition but the coronavirus pandemic accelerated the process.

Use of chatbots and AI-based voice, assistants, augmented reality (AR), virtual reality (VR) and mixed reality (MR), mobile-based apps, robots, cloud computing, analytics among other technologies are expected to optimize healthcare delivery and workflow while minimizing unnecessary costs. This should lead to operational excellence and better customer experience. Insurers who can bridge the physical-virtual gap will be the frontrunners in the industry.

Industry player UnitedHealth Group Inc. (UNH - Free Report) leads the pack with a separate unit named OptumInsight, which offers software, data analytics and related services to healthcare providers.

Rising Membership: The industry players are well-poised for growth on the back of several contract wins. Moreover, Biden allowed a Special Open Enrollment window on Feb 15 and extended the same to Aug 15. This gave Americans another chance to buy insurance coverage online on health exchanges. Biden's support for ACA led to a membership hike for companies like Centene Corporation (CNC - Free Report) during the special enrollment period. This also made them raise their membership outlook for the current year. Per insurers, the current year might be the best selling phase for them. Insurers like UnitedHealth and Cigna Corp. (CI - Free Report) are expanding their presence on the exchanges by tapping new areas.

3 Stocks on Watchlist

The Zacks  HMO  industry, which is housed within the broader Zacks  Medical  sector, currently carries a Zacks Industry Rank #104. This places it in the top 41% of 252 Zacks industries.

The Zacks HMO industry has grown 37.3% in a year’s time compared with the S&P Index’s rally of 39.4%.

These health insurance stocks hold ample growth prospects to retain stability in the days ahead. Here are three stocks that presently have a Zacks Rank #3 (Hold) and managed to surpass the S&P Index in the past year. All the companies have a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Anthem Inc.’s strategic buyouts and collaborations and an improving top line along with the company’s expanded product portfolio should drive long-term growth. Its solid 2021 guidance impresses. Over the past 60 days, the stock has witnessed its 2021 earnings estimate move 0.2% north. In the past year, shares of the company have gained 54.8%.

Molina Healthcare, Inc.’s (MOH - Free Report) ability to engage in inorganic growth initiatives and capital deployment reflect an improved financial position. Its strong 2021 outlook encourages. Over the past seven days, the company has witnessed its 2022 earnings estimate move 1.5% north. Over the past year, the stock has surged 84.7%.

UnitedHealth Group continued strong growth at Optum as well as UnitedHealthcare segments are driving revenues. Its favorable government business and a strong capital position are other positives. Over the past 30 days, the stock has witnessed its 2022 earnings estimate move 0.4% north. In the past year, shares of the company have surged 41.4%.

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