Last week in this space, I discussedMolina Healthcare Inc. (MOH). Another company that should benefit nicely from the rising numbers of customers it will receive courtesy of the Affordable Healthcare Act is Health Net Inc. (HNT).
Founded in 1979 and with headquarters in Woodland Hills, California, HNT offers commercial healthcare products and insurance through network physicians, hospitals and other providers, preferred provider organization plans, point-of-service plans and Medicaid and Medicare coverage. Their customer base currently covers approximately 5.4 million individuals through group, individual, Medicare, Medicaid, the U.S. Department of Defense and Veterans Affairs programs.
HNT was driven by muscular earnings growth reaching 119% in the first two quarters of this year. Operating in highly-populated California, the market expects HNT's increase to continue, estimating a strong 21.44% growth rate in 2014 with an attractive forward price-to-earnings ratio of 11.63x those earnings.
Now, let's look at HNT's daily chart. The health care provider opened the year on January 2 at $24.81. It rose in an uptrend until July 11th of this year, to an all-time high of $33.70. At that point, it fell back for four days to a low of $31.74, and then quickly popped higher to retest that high. But HNT could not hold those levels, and after creating a brief double top pattern, it gradually slid to mid-Augusts lows, to $29.11.
Source: RealTick
At those lows, investors recognized a good buying opportunity, and HNT quickly recovered from that dive. By September 16, the price ran back up to the July high and bested it by 20-cents, touching another all-time high at $33.90.
Since then, HNT retraced a portion of that move with the broader market, and then rallied to close on Thursday's at $32.61.
We can see a potential cup-with-handle pattern forming here, outlined on the chart. This is a positive pattern with upside potential. Should HNT continue higher from here -- which it should if lawmakers on Capitol Hill come to a resolution over the debt ceiling -- it would complete the cup-with-handle pattern when (if) price moves back up to prior highs at $34 and breaks above it.
If the market remains favorable, and if HNT can trade above $32.80, I will consider purchasing one-third to one-half my intended position size at that level. I will add to my position when (if) HNT closes above $34. My initial protective stop will be placed below nearby support represented by the 50-day simple moving average (green on this chart), at $31.30. My initial profit target is at $35.
The passage of comprehensive healthcare reform legislation including the individual mandate to purchase health insurance will reshape the health care provider industry in the coming decade. It makes sense that HNT will benefit from this change.
At the time of publication Turner did not own shares of HNT.