3 Top Stocks for Obamacare Lovers

By Markets Fool.com

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Source: White House on Twitter

Obamacare is unquestionably a lightning rod for controversy. Millions of Americans dislike the health reform law, but many also support it. What isn't in dispute, though, is that Obamacare has created quite a few winners in the market. Here are three top stocks for Obamacare lovers -- and maybe even for opponents of the law who don't mind profiting from it.

1. Community Health Systems
One obvious beneficiary from Obamacare has been hospitals. As more previously uninsured Americans gain health coverage, they are more likely to seek medical care. And hospitals are less likely to have to absorb the costs of uninsured individuals obtaining emergency care.

Community Health Systems operates 203 hospitals across 29 states.The stock is up 32% since Obamacare's requirement for individuals to obtain health insurance went into effect in January 2014. Those gains lag well behind the nation's largest publicly traded hospital chain,HCA Holdings, but Community Health Systems seems poisedto pick up momentum.

The hospital chain has a smart acquisition strategy that should allow it to realize operational efficiencies as it grows, helping to drive earnings and share prices higher. Community Health's big buyout of HMA last year is a great example of this. The management team continues to stress a growth-by-acquisition business model, focusing on hospitals in growing markets -- primarily in non-urban settings.

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And, although only 13 of the states in which it operates have opted to expand Medicaid under Obamacare, there's a possibility that some of the others could implement alternatives that expand the program -- thereby helping Community Health Systems' profitability.

With a trailing price-to-earnings multiple of 67, you might think Community Health Systems is too expensive to consider. Think again. The company's earnings growth prospects give it a forward P/E of just over 12 -- less than some of the other big hospital chains.

2.Molina Healthcare
Many health insurers have also enjoyed a nice ride lately thanks to Obamacare. Few, though, have performed as well as Molina Healthcare. The company's shares are up almost 80% since January 2014.

Molina's success stems largely from the Medicaid expansion spurred by Obamacare. The company focuses heavily on the Medicaid market, with operations in 11 states. Even though only six of those states have expanded Medicaid, they include major markets like California, Illinois, Michigan, and Ohio.

Like Community Health Systems, Molina looks pricey at first glance. Its trailing P/E of 50, however, doesn't factor in excellent growth prospects. The company expects earnings will grow 80% year-over-year in 2015. Analysts project that Molina's growth over the next five years will be more than double that of the health insurance industry as a whole.

3. Novartis AG
While the health insurance exchanges and Medicaid expansion garner more headlines, one lesser known change made as a result of Obamacare is still a really big deal. Novartis recently became the first company to win approval of a biosimilar, which is a generic version of a biologic drug, under a process established by the health reform act.

The FDA announced earlier in March the approval of Zarxio, a biosimilar to Amgen's Neupogen. This could be quite significant for Novartis (and Amgen), considering that Neupogen generated U.S. revenue of more than $3.6 billion last year.

Novartis has performed quite well leading up to the milestone biosimilar approval. Shares are up 25% over the past 12 months. Adding Zarxio to its product lineup should help boost revenue and earnings, although it should be noted that biosimilars will likely sell at a sharp discount to the biologic drugs they mimic. Novartis also recently announced good news for another promising drug,Cosentyx. While Cosentyx isn't a biosimilar, the drug could be a formidable foe for Stelara and Enbrel in treating psoriasis.

Feeling the most love
Obamacare lovers have plenty of reasons to love all three of these stocks. But which one deserves the most love?

I'd say that Molina probably has the most potential to outperform over the next few years. The company does face the possibility of losing its contract with Michigan later this year with the state accepting new bids. However, Molina could wind up keeping the contract, and the insurer stands to do well with the growth of Medicaid managed care.

There's also a reasonable chance that Molina could find itself on the radar screen of a larger health insurer looking to build its Medicaid market presence at some point in the future. Even if not, this is a stock for which Obamacare lovers and haters alike might develop fond feelings.

The article 3 Top Stocks for Obamacare Lovers originally appeared on Fool.com.

Keith Speights has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.