New Trade for February 16th, 2021

Wall St. sentiment is optimistic this morning, after the long weekend.  Covid 19 cases and hospitalizations are dropping, finally.  Plus, Senate is once again focused on stimulus.  February’s strength continues, for now.

The current bull market – fueled by cheap money from the Fed and stimulus hopes – is going to end.  Every bull market does.  Several experts see the potential for a correction in the coming months.  

“Overall we still believe U.S. equities in general remain vulnerable to a bigger correction than we have experienced thus far – and that could materialize in Q1 or Q2 with upwards of a -10% to -15% repricing off the recent highs.”  says Dan Wantrobski, technical strategist at Janney Montgomery Scott.

“The message from market sentiment and positioning indicators is that equities are ripe for correction.”  adds BCA Research.

Naturally, it’s better to have an escape plan before you need it.  Which is why our research team is hunting down the best stocks to buy for a downturn now, when the markets are at all time highs.  

Our trade alert for today highlights one area of the market that will be in demand no matter what happens over the next few months.  

Centene Corp. (CNC) earns its money managing Medicare and Medicaid contracts.  It does this through managed care, in which it controls spending through contracts with front-line clinics, as well as acute care facilities such as dialysis centers, and by controlling drug disbursement.

The model proved very popular on the exchanges created under the Affordable Care Act, as the company could offer lower prices than traditional insurers.

Centene has already made an M&A move in this young year, agreeing to buy Magellan Health (MGLN) for $2.2 billion.  Deutsche Bank analyst George Hill praises the Magellan buy, which focuses on specialties new to Centene, such as mental health.  It also brings in 5.5 million new government patients, 18 million specialty health customers, and 16 million medical pharmacy members.  

“Centene will double the lives covered in mental health and establish one of the largest behavioral health platforms in the U.S., with 41 million unique members,” Hill says.

Centene trades at just 11 times earnings estimates.  Part of that is because margins are thin, though, with just 2% of revenues hitting the bottom line.  That means growth has to come from acquisitions, from low bids on the exchanges, or from new government health contracts.

“The more challenging the economy and the fewer people who have medical coverage from employers, the greater potential there is for them to seek Medicaid coverage,” says Sam Hendel, president of Levin Easterly Partners in New York.  He adds that Centene is a defensive stock “with a low correlation to economic or stock market weakness.”

The analyst community also throws its weight behind CNC shares.  Thirteen of 17 pros covering Centene put it among their best stocks to buy now, with an average $82.15 price target that implies 36% upside from current prices.

Where to invest $1,000 right now...

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And it's not Centene Corp.

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But you have to act now, because a catalyst coming in a few weeks is set to take this company mainstream... And by then, it could be too late.

Click here to find out the name and ticker of Keith's #1 pick...