Yesterday we looked at one of the stocks Navellier has been pitching for his Ultimate Growth service, and today I’m moving on, as promised, to look at the second pick.
And perhaps I should have swapped the order, since the ad actually called this one his “#1 Stock to Buy Today”… but, well, it seemed to me that the other one was a more interesting story to begin to investigate.
The big idea is that there’s a big “sell the news” reaction to the fact that the “Trump Trade” and its easy money is over, as the Republicans failed to deliver on the big healthcare reform promise on their first run around the track, but that the “Trump Trade” is not over, and Navellier thinks there’s a good buying opportunity in his favorite growth stocks.
Here’s a little taste of the ad, so you can see how he puts it:
“Some of the biggest winners of the original ‘Trump Trade’ are getting hammered. Financials, Energy, Industrials and Materials all have taken big hits. While new stocks and sectors are ready to take the lead.
“I want to help you take advantage of this huge shift right away, with a new crop of under-the-radar stocks ready to make their move.
“This little Trump Tantrum the market is having is a great chance to grab my top picks at good prices.”
Navellier says that his focus is on “AAA-Rated” stocks with spectacular earnings growth, spectacular sales growth, a history of positive earnings surprises, and a reasonable PE — we did notice that yesterday’s stock, Ubiquiti Networks (UBNT), actually fell within Navellier’s own quantitative system from an “A” rating to a “B” rating after a rough February… but let’s see what this latest stock is and how it shapes up.
Here are our first hints:
“My #1 pick right now is probably a company you haven’t heard of… and that’s a good thing.
“If you’re like most Americans, you’re fortunate enough to get your health insurance through your employer or that of your spouse.
“But if you’re one of the millions of people who are small business owners, freelancers, unemployed or without an employer-based plan, then there’s a good chance you’ve been exposed to my #1 under-the-radar stock.
“That’s because my #1 pick is a health insurance company that’s made a killing thanks to Obamacare. This company provides an online platform that connects in real time licensed insurance agents with people seeking a health insurance plan.”
OK, so this is one that has benefited from Obamacare… presumably that means it also benefits from the fact that the Republicans failed to revise Obamacare last month, though there’s always the risk that they might do so on their next try. Any other clues?
“Thanks in part to the 20 million new insurance consumers brought in by Obamacare, this company’s numbers have been surging.
“In its FY16 fourth quarter the company reported revenue that soared more than 50% year-over-year to $51.4 million. Adjusted earnings also surged a whopping 250%… from $0.10 a share a year ago to $0.35 a share in 2016.
“Compared to what analysts were expecting, those numbers represented a stunning 94% earnings surprise.”
And, as we might have guessed from that lead-in, the stock peaked back in January when Trump hopes for a health care shakeup were highest… but has come down a bit since. This is what Navellier says about it:
“But this stock’s success is NOT tied to Obamacare. Whether we keep Obamacare or end up with Trumpcare, Ryancare or something else…tens of millions of American will still be shopping for insurance plans and this company stands to profit.
“Thanks to Congress, you now have a second change to get into my #1 pick at a great price… and I think there are plenty more gains to come.”
So… hoodat? Thinkolator sez we’re dealing with: Health Insurance Innovations (HIIQ), a small cap insurance company that primarily uses call centers and an ecommerce program to sell various types of health insurance, some of which they seem to have custom-developed with their carrier partners (they call themselves a “Managing Underwriter, a Third-Party Administrator, and an Active Technology company.”)
And you can see why this caught the eye of Navellier’s quantitative system — last year was a phenomenal one for them, both in terms of overall revenue and earnings growth and in terms of “earnings beats”, with four quarters in a row of results that were reported as dramatically better than analysts had expected (yes, they did beat analyst estimates by 94% in the most recent quarter — but the previous three were far more dramatic, with beats of 200%, 350%, and 467%).
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That tells you that they either ramped up much faster than expected, did something else to fairly dramatically change the company without the analysts noticing right away, or, perhaps, that the analysts just don’t know how to estimate results for this one.
The company has come back down a bit from that January high of around $20, and certainly the political debate is having an impact on all the health insurers and related firms… but the dip is also probably partly in response to their secondary offering that hit about a month ago, right after they announced their latest “blowout” quarter.
That secondary was not about raising money for the company, which seems to be able to self-finance at this point (they don’t have much cash, but neither do they have any meaningful debt, and last year the cash from operations easily covered their capital needs), but about letting their founder, Michael Kosloske, cash out his holdings at the suddenly much higher share price (the stock was down near $3 last Summer, the founder sold in this secondary at about $14). That was a substantial and meaningful insider sale, netting Kosloske about $40 million from a company that has a market cap of only about $270 million.
HIIQ seems to specialize in “flexible” insurance plans — short-term medical coverage, limited benefit plans or fixed indemnity benefits for hospitalization or sickness, ancillary insurance programs like “fill the gap” insurance, dental, etc. I suppose they might benefit from a substantial relaxation of the insurance rules, since the flexible insurance plans that don’t meet the Obamacare mandates in terms of quality or scope of coverage might pick up if those mandates are relaxed, but that’s not at all an expert opinion.
In financial terms, the stock looks pretty compelling — it trades at a trailing PE of about 27, but a forward PE of 10 — but I can’t get myself to be all that interested given the significant regulatory uncertainty. I find myself looking back to the last “alternative health care” stock that I covered a pitch for, HealthEquity (HQY), and finding that one a little more comforting… if only because it has some compounding power thanks to the recurring and sticky nature of the Health Savings Accounts management fees, but in this environment I can’t convince myself to commit to any of the companies who have such specific exposure to regulatory change in the health insurance business.
In part, that’s skepticism comes because I’ve only looked very briefly at this one so far (as I do with most teaser pitches, just enough to get a basic picture so I can write them up quickly for you), and it’s easier to be skeptical when you’ve seen only the broad outlines and not had a chance to dig in and “buy” the story. If you’d like to see a bit more detail about how the business works, they do have an investor presentation up on their site here. They’re still very, very small, with only 300,000 or so policies in force as of the end of last year (generating $185 million in revenue), so there’s certainly room to grow if they can continue to surge like they did in 2016.
Your opinion may well vary, of course, and I had never looked into HIIQ before today. If you’ve some thoughts on this one to share, or thoughts on the health insurance marketplace in general, feel free to illuminate us with a comment below.
P.S. Just remembered that I noted the public version of Navellier’s UBNT grading yesterday, so I should do the same for HIIQ today… interestingly enough, like UBNT, HIIQ was recently downgraded by Navellier’s Portfolio Grader from an A to a B (like UBNT, it’s still listed as a “buy”).