Building Healthy Portfolios: Post Mid-Term Madness Portfolio Strategies

Finally, it’s over! The mid-terms have come and gone, and the winners and losers will be debating who actually won and lost for a long time to come. But this post isn’t about political winners and losers – well, at least not directly so. We’re more interested in stocks that could potentially win as a result of the political outcome from the mid-terms.

Peeling the onion

When talking about winning or losing stocks, the fallout from the mid-term elections aren’t a binary outcome really. There will be stocks that take a beating, and those that will soar. However, the ones that we should watch for are directly tied to the platforms associated with the midterm-outcome – which was: Democrats took the House, while Republicans held the Senate.

There is now a split-power structure in place, which will make it very difficult for any single party to push its platform through. The most likely scenario therefore will be negotiated settlement of various conflicting agendas. Compromise will most probably have to be the buzzword over the next two years (until 2020).

The rationale for give/take is:

  • It is likely that both parties would like to get at least some of their agenda items moving
  • Chances are that Dems and Reps already have their eyes on the 2020 presidential race
  • Both parties see health care as a battleground that could impact result-2020
  • Each of them would like to have some gains on that battleground, in order to take their case back to the electorate in 2-years

Assuming that this is the base case that any rational thinker would pursue, it’s hard to believe that some form of compromise won’t be achieved on major issues – even though they might not see eye-to-eye on the core challenges surrounding those battleground items.

When we peel that onion then, we could see that there might be broad cross-section of companies in the health care sector that could benefit from this split power-sharing structure.

Building the healthy portfolio

Our recommendation is to create a diversified portfolio that includes a mixed-bag of players.

UnitedHealth Group Incorporated (UNH)

Anthem, Inc. (ANTM)

Express Scripts Holding Company (ESRX)

Humana Inc. (HUM)

Cigna Corporation (CI)

Edwards Lifesciences Corporation (EW)

Merck & Co., Inc. (MRK)

HCA Healthcare, Inc. (HCA)

Zoetis Inc. (ZTS)

Health Care Plans

Health Care Plans

Health Care Plans

Health Care Plans

Health Care Plans

Medical Devices

Drug Manufacturers – Major

Medical Care

Drug Manufacturers – Specialty

Let’s face it: Neither party will manage to push through a “Affordable (public) health care for all!” mandate. Conversely, neither of them has the legislative strength in numbers to go the other direction “Privatize health care across the board”. As a result, a compromise-driven strategy is your best strategy to create a healthy health-care-centric portfolio.

The names that you should consider may come from the heavy-weight health care plan providers/managers, as well as direct medical care providers, and medical device and drug manufacturers. The idea is that, regardless of which aspect of a health care agenda moves forward, you’re likely to have at least some winners in the portfolio that will directly benefit from such moves.

As can be seen from the Price-Performance chart above, there has been a positive move in most of these names proposed. The fact that we are looking at a short-term price -move chart is deliberate. We wanted to highlight what the market is telling us – both in the run-up to and in the immediate aftermath – as a result of the mid-terms. An average move of nearly 8% over a 10-day period is pretty impressive.

For cost-conscious or one-stop investors that don’t have the inclination to research or buy multiple stocks to build a portfolio, the Health Care Select Sector SPDR ETF (XLV) might be the answer.

This ETF holds a broad basket of some of the best US and global healthcare names. On October 25th, it closed at $88.42. At the time of this writing (approximately 10-day interval), the stock is trading at an intra-day level of $93.22 – an almost 5% jump. This again illustrates that short-term momentum in these picks is definitely positive. Hopefully, by the time the dust settles, and you have built your positions, you’ll not only enjoy great health care, but will also benefit from a healthy portfolio!

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Author does not have investment in stock discussed in this article.

With a Bachelor's degree in Commerce (with Accounting/Finance as a major), a diploma in Technology Management and Entrepreneurship, and Microsoft’s IT Infrastructure Library (ITIL) certification (including from the London Chamber of Commerce and Industry, and the University of New Brunswick in Canada), Monty brings a diverse repertoire of analytical and writing skills to the team. Monty’s vast international work experience, in Audit, Tax, Project Management, IT and Management Consulting, including with companies like Price Waterhouse, Peat Marwick and KPMG, adds a unique perspective to the content he produces.