Major policy changes have the unique ability to unsettle whole industries. The healthcare overhaul will be no different.
WellPoint Inc., the country’s third-largest managed care company (by market cap), recently signed an agreement to acquire Amerigroup Corp for $92 per share. Amerigroup was trading at about $64/share before the deal was announced. This means WellPoint really wants Amerigroup’s Medicaid business.
Over 85% of Amerigroup’s clients are Medicaid recipients. WellPoint was willing to pay 43% more for each share because it’s betting on continued growth of the Medicaid market, which ObamaCare seeks to expand.
Here’s a daily chart of WellPoint (NYSE: WLP):
As I see it, WellPoint is oversold based on the Relative Strength Indicator (RSI). This means the stock is a relatively good value at current prices.
The last time WLP was in oversold territory, in August 2011, it subsequently rallied 32% higher.
With a bright future for managed care companies that will benefit from enrollee growth (thanks to the Affordable Care Act) and Medicaid recipients (thanks to financial pressures of a poor economy), Wellpoint is in a position to benefit in the long run.
At current oversold prices WellPoint is a “Buy.”
If you haven’t done so already read the Survive & Prosper issue on “Affordable Care Act (aka ObamaCare) Needs Young People to be Idiots”.