Centene (CNC): Great Potential

By Timothy Lutts, Chief Analyst, Cabot Stock of the Month
From Cabot Wealth Advisory 12/22/14 Sign up for Cabot Wealth Advisory—it’s free!

Centene (CNC) is actually bigger than Alibaba (last week’s Top Revolutionary Stock) by revenues ($15 billion vs. $10 billion), yet I’ll wager most investors have never heard of it-even though Alibaba is a Chinese company doing no business in the U.S. and Centene is an American company doing all its business in the U.S.

That business, in short, is providing healthcare services.

The majority of the firm’s business (77%) is providing these services to uninsured and under-insured individuals.

And this qualifies as a revolutionary business (at least in my mind), because Obamacare cements the major trend of governments, both Federal and state, assuming greater responsibility for the healthcare of Americans, and having greater control of the dollars used to pay for it. Thus any company that’s expert at getting these dollars is going to get more of them!

The programs in this category include Medicaid, State Children’s Health Insurance Program (SCHIP), Aged, Blind or Disabled (ABD), Foster Care and Long-Term Care (LTC), in addition to other state-sponsored programs and Medicare.

The other part of Centene’s business is Specialty Services, which provides behavioral healthcare, in-home services, vision coverage, telehealth services, pharmacy benefits management services and pharmacy services for complex diseases.

All these healthcare programs are growing, and as a major and early beneficiary of these programs, Centene is almost guaranteed to see continued growth for years to come.

Plus, because Centene serves roughly 3.7 million members in just 21 states, it has the potential to expand into 29 more states!

Revenue trends are already great.

Last year, Centene grew revenues 34% to $10.8 billion.

This year, they look likely to top $15 billion. In fact, revenue growth has been accelerating, with the last four quarters bringing growth of 29%, 37%, 54% and 56%.

And in 2015, management is aiming for more than $20 billion in revenue, up roughly 32% from 2014. It’s also looking for earnings of $5.05 to $5.35, up roughly 17% from this year.

Last but not least, let’s look at the chart.

CNC’s chart reflects the fact that all the above good news is not a secret. Even though the man on the street may not recognize the name Centene (in part because it operates through many subsidiaries), Wall Street knows the stock well, and it likes what it sees. That’s why the stock has been hitting new highs in recent weeks.

So, if you like the story, how do you play it?

First, you try to buy on a dip. Then, assuming you get a little profit under your belt, you average up over time.

Alternatively, if you think CNC is just too high now, you become a regular reader of Cabot Top Ten Trader, which is where CNC was first recommended by Mike Cintolo (right after its blowout third-quarter earnings report). Mike’s readers are sitting on a nice profit now, and when the stock cools off, Mike will probably tell them to cash out and move on the next hot stock.

In short, CNC can be both a trading stock and an investing stock. But you better decide what your goals are before you buy.

For more guidance, including weekly updates on all the stocks Mike is recommending now, click here now.