According to Money Morning‘s Chief Investment Strategist Keith Fitz-Gerald, this event could throw one-sixth of the world’s economy into chaos.
But for savvy investors, this event doesn’t have to be a nightmare. In fact, Fitz-Gerald is recommending three healthcare stocks that could return big profits as a result of what’s ahead.
“As an investor, you’ll absolutely want to be ready for what happens next,” Fitz-Gerald said last week.
Let’s take a look at why June 2015 is a huge month for Obamacare – and for these healthcare stocks…
The Upcoming Obamacare “Nightmare” Event
By upholding individual mandate of the Affordable Healthcare Act (AHA) two years ago, the Supreme Court ruled that most Americans must obtain health insurance or pay a tax penalty. This created an influx of new people to the healthcare system, and allowed for significantly lower premiums.
But according to Fitz-Gerald, there is a major weak point that is about to be exposed…
“Here’s what you need to know – millions of people who would be required to buy health insurance couldn’t afford to do so,” Fitz-Gerald said. “They still can’t. So Obamacare’s drafters included subsidies in the law, allowing millions of poorer Americans to gain insurance and avoid the hefty fines Obamacare would have otherwise dealt them.”
But when drafting the law, the authors only granted subsidies to healthcare exchanges established “by the state.”
More than 20 states – including Texas and Florida – boycotted the exchanges. Individuals in those states had to rely on federal exchanges.
But now there is a Supreme Court Case, King v. Burwell, that’s determining whether these federal subsidies apply in states without state exchanges. The case will likely be resolved in late June.
Now, here’s where the “nightmare” scenario kicks in…
If it’s determined the subsidies don’t apply, millions of healthy Americans will forego insurance. Premiums would skyrocket for those depending on Obamacare. Fitz-Gerald said the whole AHA could unravel.
“Capitalism being what it is, those same higher prices will, in turn, drive out larger numbers of healthy people, until only the sickest, oldest Americans are left,” he said. “When you hear the words, ‘death spiral’ and ‘health insurance’ in the same sentence, this is what they’re talking about,” Fitz-Gerald said.
“It’s the nightmare scenario, and it’s only held off so far because the incentives and penalties have forced millions of healthy people to join the exchanges and help pull down costs.”
And this won’t just impact individuals.
Before Obamacare, hospitals provided $41 billion in uncompensated care from their emergency rooms. But now that millions of new Americans are receiving subsidized insurance, these hospitals are shelling out much less money.
Insurance companies have benefitted too from the flood of new customers.
If the nightmare scenario comes to fruition, we could see a major slump in healthcare stocks. And that would create what Fitz-Gerald describes as a “legendary buying opportunity.”
While researching this scenario for his readers, Fitz-Gerald actually found three profit opportunities. These healthcare stocks to buy will give you an edge over the millions of other investors who will be caught off guard…
Healthcare Stocks to Lowball No. 1: iShares U.S. Healthcare Provider (NYSE: IHF)
Fitz-Gerald’s first pick is the ETF iShares U.S. Healthcare Provider (NYSEArca: IHF).
IHF invests heavily in health insurance companies, and has seen its price soar 174% in the last five years. In 2015, it has climbed nearly 15%.
“If the Supreme Court strikes down the subsidies that are so vital to Obamacare’s survival, a myriad of companies IHF tracks will see haircuts in the market capitalization, and the ETF will suffer,” Fitz-Gerald said. “In fact, it’s even more likely to suffer than most individual healthcare companies, since its exposure is more widespread.”
Fitz-Gerald sees a scenario where IHF drops 20% after the Supreme Court decision in June. If that happens, investors will be able to pick up shares of IHF at a huge discount.
Fitz-Gerald also thinks that a negative Supreme Court ruling would only be a short-term problem for IHF. In his words, “there’s no derailing the medicine train for long.”
He recommends entering a lowball order to buy IHF at $102.30 or less. As always, he recommends a 25% trailing stop.