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2 Stock Pickers Agree: Health Care Valuations Are Cheap

President Barack Obama's health care overhaul cleared its second 60-vote test in the Senate early Tuesday morning. How are these activities in Washington affecting stocks? Sheryl Skolnick, senior vice president and health care analyst at Pali Capital, and Les Funtleyder, health care strategist at Miller Tabak, shared their insights.

“The scope of the bill has narrowed such that although it’s not fully quantifiable, we should be able to make statements that it’s not as bad as investors had expected,” Funtleyder told CNBC.

“Given the valuations are...below historical valuations, there’s plenty of room for multiple expansion.”

Funtleyder said he likes United Health and Humana in the HMO group.

Skolnick said investors are pouring back into the health care stocks because valuations are cheap and fundamentals are looking good.

She expects an increase in merger and acquisition activity, in addition to companies becoming public.

“With reform, we could see HCA become public again, followed by Iasis and Vanguard, two other smaller hospital companies,” she said. “We could see additional M&A in both hospital and managed care space."

However, Skolnick cautioned investors looking to buy managed care stocks:

"The devil is in the details in both of these bills—the regulations that will be imposed on these managed care companies are significant once coverage is extended," she said. "And over the long-term, investors need to understand that they may be buying a regulated utility.”

Skolnick likes Tenet Health Care and Community Health Systems .

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Disclosures:

Funtleyder does not own shares of UNH or HUM.

Skolnick does not own shares of TCH, CYH, HMA, SEM. However, Pali Capital currently makes a market in SEM, HMA, CYH and THC.

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