Elevance Health Inc (ELV)

Whole group has been hurt by rising medical cost ratios as Covid-delayed procedures were finally scheduled. That turbulent time is bottoming. Tough slog, but he's being patient.

Is holding on. It's in a troubled industry. When Covid hit, people stopped claiming medical costs against their insurance, but that snapped back after Covid all at the same time. This pressured profits in US health insurance. So, results have been lumpy. 2026 will see a big bump in premiums that ELV will get. It's more of an industry issue. Note that employers take part of the risk to achieve lower premiums for their workers. He sees good value ahead for ELV, and is holding on.

The health insurance business is suffering. People put off surgeries during Covid and then when they decided to have these procedures done using insurance it put pressure on margins. A bottom is being created on the stock and sector but maybe there's still more to go. Will have a nice run when the bottom is reached. Has a much better valuation than United Health.

Health insurance is an integral part of the overall health solution in the US. Much of the participation comes via employment. Inexpensive, trading at about half the valuation of UNH, but with comparable growth rates. About 2/3 of commercial business is a fee-based, rather than risk-based, model (so the employer takes on some of the risk). 

Earnings today were mixed, but primarily good. The whole group is poised for a rebound once it finds a floor. Yield is 2.02%.

A challenging stock in a challenging sector. 47 million Americans are covered under their programs; 60% of plans are fee-based, so they pass some of the risk to employers. He expected this set up to partially insulate ELV from what's hitting this industry. He was wrong. Many operations that were delayed by Covid are happening now, while a large cohort of people who lost their jobs became eligible for Medicaid. Before, pricing reflected low utilization, but suddenly that surged and pricing has lagged. Pricing is reactive. There could be a V-shaped bottom in this sector. Maybe.

Offer in 14 US states for-profit Blue Cross/Shield, and are the administrators of healthcare for the US government. Also operate a pharmacy benefits manager. Costs have risen unexpectedly, but he feels that's temporary. ELV are crucial to delivering healthcare in the US. 

Unlike UNH, ELV has a big part of their business in fees, so are less exposed to the gyrations of the insurance benefit cost ratios.

More opportunity than UNH, but also hurt by reimbursement rates. But a lot of ELV's business is fee-based, so they don't take on the full liability of these higher rates. Share have fallen to become an opportunity.

Has long owned them. Trades at good multiples. Shares are down a lot. Their business is structured differently from UNH, which relies on Medicare/Medicaid, but ELV runs on a fee-based system, which means less exposure to medical losses. He just added more shares today on a dip.

Certainly some stocks are less vulnerable to issues involving tariffs. What comes to mind are healthcare companies. You could look at some of the beaten-down companies that really didn't do well last year, as they're doing quite well today. Try this name, which he owns.

It is for profit Blue Cross and Blue Shield Insurance and orchestrates insurance across various drug companies as well as administrates health care for the government. There are a couple of headwinds and needs the fundamentals to validate it. He likes the value.

See UNH comments. The whole US health insurance industry is in turmoil. The industry itself admits there's a problem with how claims are processed and need to be fixed. These companies are necessary in the US health system, and they are for-profit. ELV hasn't traded at this low a valuation since 2013. Hold on.

Their report last week disappointed--their big problem involves Medicaid with their medical cost ratios were much higher. The street saw it as a misstep due to mis-timing.

Trades at a cheaper multiple than leader UNH. Likes it.

Health insurance companies have done extremely well and will continue to do so. And this despite continued bombardment to try to tamp down profitability in the sector (its predecessor, Anthem, was trading around $7 a share in 1995). Company expects revenue to grow 10%+ and earnings in low teens. Trades 12-13x earnings. Great setup for long-term hold.

Don't get caught up in the news of the day, think about where it's likely to be in 5-10 years. Use these times of weakness to add to or start a position.