Obama says: “Buy!”

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):

See larger image

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”.

 

 

 

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About Author

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.