HMO stocks rally for 2nd day, cutting year losses
NEW YORK (Reuters) - U.S. health insurer shares, which have mirrored the rocky performance of financials in recent weeks, rose for a second straight day on Tuesday after the U.S. government planned equity stakes in financial institutions.
The Standard & Poor's Managed Health Care index .GSPHMO of the six largest U.S. health insurers was nearly 5 percent higher in afternoon trading, outpacing a 1 percent drop in the S&P 500 index .SPX. The health-insurer index is up about 29 percent this week.
Coventry Health Care Inc (CVH.N), Humana Inc (HUM.N), Cigna Corp (CI.N) and WellPoint Inc (WLP.N) each rose more than 6 percent on Tuesday.
Investors have been worried about the health insurers' investment portfolios, and the companies have been "painted with the same brush" as financials, said Edward Jones analyst Aaron Vaughn.
"There were concerns in the market about the investments that managed care companies might hold, what the level of write-offs may or may not be," Vaughn said. The stock performance "has nothing to do with the companies' operations. It has to do with the investment portfolios."
Before trading opened on Tuesday, Bank of America analyst Brian Wright raised his rating on the managed-care sector to "overweight" from "equal-weight," saying that shareholder concerns over the companies' investment portfolios have been "unwarranted."
The companies, like other insurers, keep huge reserves on their books.
Traditional insurers may have exposure to equities and derivatives because they may not have to pay off claims for decades, Wright said in a research note. By contrast, he said, health insurers maintain portfolios that include more liquid holdings, including high-grade bonds, because they must pay medical bills in six to nine months.
Despite the recent rally, the group is still down 52 percent this year. Many of the health insurers have cut their initial profit expectations for 2008, causing a broad sell-off for the stocks even before the investment portfolio worries.
(Reporting by Lewis Krauskopf, editing by Gerald E. McCormick)
