Steve Bullock, Research Analyst at Fidelity Management & Research Company, says he is generally underweight the health insurance sector. However, he says Cigna Corporation (CI) remains one of his favorite stocks.
“If we think about the Affordable Care Act, which has been the big regulatory driver in the space over the last couple of years and will be for the next couple, it hits the health insurance industry with a significant amount of taxes, fees and reimbursement cuts,” Bullock says. “We’re in the middle of that playing out, and the reimbursement cuts and the incremental tax load being put on these companies steps up in 2014, 2015 and 2016.”
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Bullock says he still likes Cigna because the company has differentiated growth drivers that aren’t in the core insurance business. That gives him more confidence in the company’s earnings growth capability. For example, Bullock says Cigna is opening offices in India, which has one of the youngest demographic profiles of all countries in the world.
“I think more important than the demographic makeup of some countries is the fact that their middle class population is emerging. A lot of these countries have a state-run health system, and so you don’t necessarily need health insurance,” Bullock says. “But if you want good health care, a lot of these rising middle classes are deciding that they want to buy additional private health insurance, and that’s really where these companies are playing, the private health insurance market.”
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