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”.

 

 

 

Adam O’Dell

Using his perfect blend of technical and fundamental analysis, Adam uncovers investment opportunities that return the maximum profit with minimum risk.