Stocks to sell

Given the evergreen nature of their business, health insurance stocks offer investors a stable play. However, the rising medical costs are wreaking havoc, creating a minefield of health insurance stocks that could dent your portfolio.

For example, UnitedHealth Group (NYSE:UNH), has been ringing alarm bells over escalating costs as Americans make up for delayed surgeries amidst the coronavirus pandemic. The spurt in “strong outpatient care activity” signals a potential overshoot in premium revenue spent on care for the second quarter.

Moreover, as 2023 rolls in, we are staring at an upward trajectory of health insurance premiums, a trend impacting 36 different states. A gamut of factors ranging from the enrollees’ age and health to insurers’ negotiated rates with healthcare providers. A confluence of events transforms seemingly safe stocks into stocks affected by rising health costs. Let’s delve into the three stocks to sell on rising health costs.

iShares U.S. Healthcare Providers ETF (IHF)

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iShares U.S. Healthcare Providers ETF (NYSEARCA:IHF) is a leading fund that targets U.S. healthcare stocks, primarily in the health insurance sphere. It effectively tracks an index of U.S. healthcare providers, including health insurers, hospitals, and nursing homes. Its top 10 holdings account for 72% of the fund’s assets. Additionally, more than 60% of its total assets accrue to health insurance businesses.

The IHF ETF is down more than 7% year-to-date, with a dividend yield of just 0.8%, or 63.2% lower than the sector median. Moreover, with its exposure to the leading health insurance players, expect the ETF to lose more value ahead. Also, it has an annual volatility of almost 19%, making it one of the more risky plays in its niche.

Centene (CNC)

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Centene (NYSE:CNC) is one of the leading U.S. providers of managed healthcare insurance, facing a challenging path ahead. Recently, the firm recalibrated its fiscal year 2024 earnings per share (EPS) expectations from $7.15 to slightly above $6.60. This adjustment reflects the anticipated hurdles, such as Medicaid margin impacts and Medicare Advantage rate changes.

On top of that, the firm’s Medicaid Health Benefits Ratio (HBR) is expected to rise to nearly 90% by 2024. This indicates a larger portion of their sales will be spent on healthcare costs, thereby reducing profitability. Next, premium increases may struggle to keep pace with the higher medical expenses associated with a sicker population. These changes underscore Centene’s difficulties in balancing profitability in a tumultuous market. These factors shape a landscape that underscores the high-stakes balancing act Centene needs to maintain profitability in an unpredictable market.

Manulife Financial Corp (MFC)

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Manulife Financial Corp (NYSE:MFC) is a financial services player offering health insurance products to a vast customer base. The Canadian firm has a substantial footprint spanning Asia, Canada, and the United States, providing its clientele with a broad spectrum of insurance and investment products. However, the economic landscape of 2023 poses formidable challenges, with high-interest rates and a slowing economy casting long shadows over Manulife’s growth prospects.

Year-over-year growth for the corporation skidded to a negative 72%, a slowdown that will extend into 2023 and beyond. First, its product lines which are not anchored to core insurance offerings have stalled. In the first quarter of 2023, Manulife’s annual premium equivalent sales dipped by 3% from the previous year, sliding to $1.6 billion.

Second, the new business value contracted by 5%, registering at $509 million. Finally, its new business contractual service margin has trailed behind the previous year’s figures by 13%, compounding its woes. According to GuruFocus, its stock is significantly overvalued, with its liquidity metrics languishing behind sector averages.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.