Healthcare stocks are rallying on Thursday in the wake of the President's address to the joint sessions of Congress on healthcare reform.  The lack of additional information in the President's speech prompted Leerink Swann & Co. healthcare analyst John Sullivan to say, The plan for healthcare reform Obama introduced last night consisted of broad strokes...We've heard it all before.

Understandably investors of insurers and managed care providers have been extremely interested in any clue as to the likely outcome of the proposed reforms, and a worst case scenario could severely damage their ability to generate profit.  The public option that is part of the proposal would pit private insurance companies against a government insurance plan, and has been seen by investors as a losing proposition.  President Obama said that the public option is not the centerpiece of his plan, and would be willing to discuss other possibilities.  Some suggest that the crux of the plan may be reforms regarding the treatment of pre-existing conditions.  Either way, the fact that the much anticipated speech did not have any unexpected sanctions or proposed taxes to insurance companies can be seen as a positive.

We still expect benign signed reform legislation in 2009 and view such an outcome as good news for health-care investors, Sullivan said.

Benign legislation, in that view, would be one without a public option, one that calls for insurance cooperatives, or one that only offers a public option if other health-care reform initiatives don't drive down costs. 9/10/2009

healthcareThere is no doubt that conditions in the industry are evolving very rapidly, and insurance stocks are going to be very volatile on any news out of Washington these days.  Stocks such as Humana (HUM), Health Net(HNT), and CIGNA (CI) are all higher by at least 3% on the news, or lack there of, from the President's address.  At Ockham, we are positive on the valuations of many stocks in the sector like Humana and Wellpoint (WLP), as you can tell from our valuation chart for those we cover in health care plans industry.  Of course, many of these companies are selling well below their historical valuation ranges due to the uncertainty.

However, we think it is much too turbulent a time to really know what the value of these companies will be in two or three years (much less next month).  The historical valuations may be of little consequence when all is said and done.  For that reason, we are not advocating buying these stocks until the future is a bit more clear.  Speculators may want to catch a bounce believing that the President will not be able to pass all of his proposed reform, but that is not our game.