Berko: Healthcare companies to invest in
Friday, December 27, 2013 10:58 AM
Dear Mr. Berko:
We own five of the drug companies you recommended (list enclosed), and they are doing fantastic. We bought them three years ago because, as you told us, the Affordable Care Act will enable more people to purchase medications. Now we have $25,600 from a preferred stock that was recently called and we want to invest this for growth. We want conservative growth with emphasis on safety. So can you please recommend four or five additional drug stocks for us? We have a seven- to nine-year horizon until we retire.
While I believe drug stocks have a lot more room for revenue, earnings and dividend growth, I’d prefer that you spread your wings a bit, look at the health insurance sector and consider some of the more substantial health insurers. The health insurance business, with help and votes from the mullahs in Congress, is a shoo-in for powerful revenue, earnings and principal growth. Its revenues will grow like wildflowers as health care spending and profits explode in the coming years. And health insurance companies never lose money; rather, they just raise your premiums and reduce your benefits.
A reader in Vancouver, Wash., wrote to tell me that her $283 a month health plan was canceled to comply with the new Obamacare law. Her new plan with the same company now costs her $432 a month. A business owner in Springfield, Ill., wrote to tell me that on Jan. 1, the premium costs for his 72-employee firm will increase by $236,000 in 2014. A reader in Durham, N.C., tells me that his $405 monthly premium Blue Cross and Blue Shield policy was being canceled by year’s end, and he was offered a new policy with a monthly premium of $892. A reader who works for Blue Cross and Blue Shield in Jacksonville, Fla., wrote that Blue Cross has 270,000 Florida policies slated for nonrenewal this summer. He says Florida Blue Cross will demand renewal increases in excess of 24 percent. Ain’t this just ducky?
The five largest public health insurers – Aetna Inc. (AET-$67.45), Cigna Corp. (CI-$85.89), Humana Inc. (HUM-$103.39), UnitedHealth Group Inc. (UNH-$74.49) and WellPoint Inc. (WLP-$91.12) collectively earned $14 billion from your premiums in 2013 after paying their corporate officers, useless boards of directors, superb salespeople, accountants and lawyers. And that $14 billion was earned after paying multiple billions for office supplies, executive pensions, employee retirement programs, utilities, rent, computers and software, phones, color printing, transportation, perks and human resources. And these five companies earned that $14 billion last year after paying multiple billions of dollars for mailers, magazine advertising, multi-page color adverts in your local newspaper and 30-second TV commercials, with your premium dollars. And those companies earned $14 billion after they collectively paid 251,000 employees more than $17 billion in salaries and payroll taxes from your premium payments. And these five health insurers earned $14 billion after subtracting billions in interest, amortization, depreciation, plus state and local taxes from your premium payments. Multiply all those costs times perhaps 100 health insurers that pay their 100 CE0s, their 100 treasurers, their 100 computer systems, their 100 advertisers, software programs, printers, etc. and pretty soon we’re talking about a potload of money. And pretty soon, we may also be talking about a single-payer health care system.
In the meanwhile, I’d be a buyer of AET, CI, UNH, HUM and WLP. Premium growth for these companies is expected to increase by 40 percent to 60 percent over the next three to five years. And with improving net profit margins, their earnings per share could increase enormously. The health insurance industry has grabbed Americans by both kidneys, and timely squeezes during the year will generate higher revenues while more restrictive coverage should ensure increasing profits. And this practically guarantees higher share prices. The mullahs in Congress have given the insurance industry a license to steal from the consumer. If you invest that $25,000 equally among these five health insurers, I’m confident that in a couple of years, you’ll be as pleased as a pasha with your capital gains.