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Big Money '07: Healthcare Stock Recommendations

The 110th session of the U.S. Congress opens in less that one week--and the Democrats are back in power in both the house and senate. One of their stated goals is making health care more affordable for Americans. But is that good news or bad news for HMOs? And either way--which healthcare stocks should investors look at?

Carl McDonald--a managed care analyst with CIBC World Markets and Charles Boorady--a healthcare provider analyst with Citigroup--appear on "Morning Call" with their check up of healthcare companies.

Boorady says that the political change in Congress has affected recent stock prices--but that it is unlikely to do much to affect earnings. He says the Democrats will hold hearings on healthcare costs--but that nothing substantial will come out of them. Boorady says he sees more consolidation ahead in the industry.

Boorady's stock recommendations:

UnitedHealth : Boorady saysthis company is in a good position to be successful in the face of higher deductibles.

WellPoint: This company has a lot of seniors on Medicare and is one of the largest companies in the Medicaid program--according to Boorady.

McDonald likes these stocks:

Health Net: McDonald says he likes their product pricing and he still sees margin expansion. He also says it's very diversified and is one of the best acquisition targets.

Cigna: McDonald says they've had some execution issues over the years but he thinks that's behind them. They've had some strong big stock buybacks and strong membership growth.

FYI: A report in the Chicago Tribune last month pointed to record numbers of patients leaving HMOs as costs have risen. HMOs were touted some 10 years ago as a solution for low cost medical care. The story went on to say that HMOs have lost ground to PPOs (preferred provider organizations). PPOs allow health plan members to go outside an insurer's list of doctors and other medical services. But that comes with a cost to consumers. A typical PPO might cover 80% of a surgery at an in-network hospital--but only 60% at a non-network facility.

It's also reported that only one in five insured American workers are in an HMO--compared with about one in three 10 years ago. Couple that with a doubling of membership in PPOs over the same time. Analysts say consumers opting for more choices in healthcare services has made HMOs less popular.