Profiting from Obamacare

Last week was a quiet, holiday-shortened trading week, despite the S&P 500 breaking out to a new record high on Thursday. The Dow Jones was up 0.46%, S&P 500 rose 0.79% and the MCSI Emerging Markets Index jumped 1.93%.

Due to the negative news from the Cyprus banking crisis, you were stopped out of Spanish banking giant Santander (SAN) at a loss. Europe, it seems, never fails to disappoint.

The big story of Q1 2013 was the momentum for the U.S. and Japanese stock markets. And few sectors in the U.S. market have had more momentum than healthcare. This week’s Bull Market Alert pick, Community Health Systems (CYH), is a bet that this momentum will continue.

CYH is a mid-sized hospital operator in the United States, running 135 hospitals totaling some 20,300 beds across 29 states. The stock has already had a strong run. But with Obamacare now the law of the land, the stock has plenty of upside left.

Here’s why…

Prior to Obamacare, hospital operators like CYH were saddled with huge debts due to uninsured and underinsured patients. But today, Obamacare is boosting the pool of paying patients as state and federally funded Medicaid programs cover more people in a number of states. Hospital operators like CYH will reap sizable gains as the number of uninsured patients (and unpaid bills) hospitals face is set to plummet.

So, why buy CYH in particular?

First, CYH is a mid-sized player. That means it has more room for growth as the pool of paying patients rapidly expands.

Second, the company was already growing steadily even before Obamacare, recording year-over-year revenue growth of 8% during the past four quarters, and earnings up 9% over the same period.

Finally, the stock is still surprisingly cheap, trading at a forward price-to-earnings (P/E) ratio of just over 10, despite having climbed steadily since the November election.

So buy Community Health Systems (CYH) at market today, and place your stop at $42.00. If you want to play the options, I recommend the June $48 calls (CYH130622C00048000).

Portfolio Update

Bank of Ireland (IRE) gave back 1.63% last week. A Moody’s report last week confirmed that, as a whole, Irish banks are very well capitalized, and that Irish banks won’t need more capital to stay afloat as Ireland continues its recovery. IRE dipped below its 50-day moving average and is now a HOLD.

Market Vectors Vietnam ETF (VNM) lost 1.26%. VNM continued its sideways trade last week as investors took a break for the holiday-shortened trading week, as evidenced by the dip in trading volume. VNM may continue this consolidation pattern for a bit longer before deciding on a direction. VNM is a HOLD.

ProShares Ultra MSCI Japan (EZJ) gained 0.53% last week and hit another new 52-week high. EZJ is up 21.25% for first quarter 2013 -– thanks to a combination of the rally in the Japanese stock market and its 2x leverage. EZJ remains a BUY.

FleetCor Technologies, Inc. (FLT) rose 1.12% to hit a new 52-week high for its first week in your portfolio. FLT grew a bit bigger last week as it acquired some fuel card business from GE Capital Australia’s Custom Fleet leasing company. The acquisition included the Fleet Card brand, contracts and nearly 33% of client contacts. FLT is a BUY.