Trading Nation

The midterm election could decide the fate of these three health-care groups

Here’s how to trade health care ahead of the midterm elections
Here’s how to trade health care ahead of the midterm elections

The health-care sector is in the crosshairs this election season.

Regulatory oversight and the long-term health of the Affordable Care Act remain in question for the industry as Democrats and Republicans wrestle Tuesday over congressional leadership.

Michael Binger, president of Gradient Investments, says the midterm results could affect three health-care groups the most.

"Washington doesn't agree on much but one thing they do … agree on is that prescription drug pricing is too high so I think no matter what happens here, pharmaceutical companies will continue to have a Washington headwind that they face," Binger said Tuesday on CNBC's "Trading Nation."

Pharmaceuticals stocks have dropped over the past month, losing 3 percent, as names like Bristol-Myers Squibb, Allergan and Eli Lilly plummeted. Biotech stocks have also lagged, dropping nearly 9 percent in one month.

Whether the Democrats or Republicans hold power will also dictate the fate of the Affordable Care Act, colloquially referred to as Obamacare, and could spell trouble for two other health-care groups.

"If the Democrats win I think that's good for the hospitals, I think that's good for the insurers. If it remains red, then I think you need to look at maybe selling off these groups because I think they'll put more and more restrictions on the ACA and those insured patients will leave the system," Binger said.

Republicans had previously attempted to repeal Obamacare, an effort that failed in July 2017 when three GOP senators voted against the bill. Greater Republican representation in the House and Senate would give them a better chance of dismantling the law.

No matter the outcome of the midterms, Craig Johnson, chief market technician at Piper Jaffray, said the long-term uptrend in health-care stocks remains intact.

"When you look at the XLV, you've been making a nice series of higher highs and higher lows," Johnson said Tuesday on "Trading Nation."

"You've been seeing this particular ETF, the health-care ETF start to outperform. It has been outperforming since the May timeframe," added Johnson. "It's sending a pretty defensive message for the overall market at this point in time with a group like this performing the way that it is."

The XLV health care ETF is up 9 percent for the year to date, more than triple the gains of the . It is one of the best S&P 500 performers in 2018.