Investors bet healthcare stocks will be among the big election winners from a divided government

Published Thu, Nov 5 202012:09 PM ESTUpdated Sat, Nov 7 202011:34 AM EST

(This story is for CNBC Pro subscribers only.) Healthcare stocks are emerging as some of the biggest market winners post-election as the possibility of a divided government transpires. The likelihood of a Democratic president and Republican Senate could keep the healthcare industry safe from shakeup that would otherwise happen with a progressive agenda. "The Health Care sector is less threatened by major changes to current structure," Citigroup chief U.S. equity strategist Tobias Levkovich told clients. "The lower possibility of rising regulatory zeal and unwelcome legislation plus pre-election positioning leaves Managed Care and Hospital stocks in better shape." Shares of UnitedHealth Group are up more than 17% since Monday and Merck & Co. and Abbott Laboratories have rallied 9% and 8%, respectively, this week. Cigna , which reported better-than-expected earnings on Thursday, is up 30% since Monday, on pace for its best week since November 2008. The Health Care Select Sector SPDR ETF — which holds names including Johnson & Johnson, UnitedHealth, Pfizer, Merck and Abbott Laboratories — is up nearly 8% this week amid the potential for a split government. Democratic nominee Joe Biden is leading President Donald Trump in Electoral College votes with Republicans likely to retain control of the Senate after Tuesday's election . The iShares Healthcare Providers ETF is up more than 13% this week, on pace for its best week since April 9. Community Health Systems and Anthem are up 25% and 22%, respectively, this week. Amgen , Bristol-Myers Squibb and HCA Healthcare have gained at least 7% this week, with AbbVie and Hologic gaining more than 8% since Monday. "In the case of either a Biden win or a Trump win, with a Republican Senate, substantive healthcare reform is highly unlikely to occur," Deutsche Bank research analyst George Hill told clients. With a blue wave, or Democratic sweep, analysts think it's less likely progressives will get any real legislative changes to healthcare, specifically a single-payer option. "Threats of outcomes including everything from Medicare for All to the Public Option would be unlikely to pass through a Republican Senate," Hill added. "Thus the managed care industry likely has at least four more years of operating in the current operating environment with headwinds and complexities like the HIF falling into the rear view mirror come 2021." Mizuho Securities noted that healthcare stocks underperform the market by an average of 13% with Democratic control in Washington. "At its core, the Republican party believes private industry is the solution to lower healthcare costs and Democrats believe in a public solution with respect to healthcare," Mizuho Securities analyst Anne Hynes told clients. However, there is potential risk if the Supreme Court makes a decision about the Affordable Care Act that forces Congress's hand in passing new legislation, Brian Gardner, chief Washington policy strategist at Stifel, told CNBC on Wednesday. Drug pricing The drug sector has underperformed since the middle of 2020 due to election uncertainty and a rotation from defensive sectors. Biden has called for drug pricing reform surrounding the Affordable Care Act, but Wall Street agrees a Republican Senate would make changes difficult. Stifel expects a Biden administration to increase rhetoric around drug pricing, though with a legislative gridlock, it doesn't expect there to be any real threat to the status quo. "While pharmaceuticals represent only 10% of US medical costs, there is significant political capital to be won by beating up on the industry," said Levkovich. Jefferies agreed a Democratic sweep would be the worst-case scenario for the drug industry. "So while Trump does want to lower drug pricing too, any drug pricing agenda will likely be diluted or his elements of his current proposals are deemed to not really drive drastic problems for most new biotech drugs," Jefferies analyst Michael Yee told clients. Best-positioned heatlhcare stocks under divided Congress Raymond James screened for the list of healthcare stocks best-positioned to rally under a divide Congress. The list screened for biotechnology companies, pharmaceutical companies, medical device companies, healthcare providers and medical supplies. Amgen , Bristol-Myers Squibb and Chemocentryx are the best-positioned biotechnology companies, according to the firm. Amgen shares are up 6.8% this week and Bristol-Myster Squibb and Chemocentryx are both up 9%. The list also includes ADMA Biologics , Perrigo , Hologic , Health Catalyst and Teleflex . — with reporting from CNBC's Michael Bloom and Gina Francolla.

UnitedHealth Group signage is displayed on a monitor on the floor of the New York Stock Exchange.

Michael Nagle | Bloomberg | Getty Images

(This story is for CNBC Pro subscribers only.)

Healthcare stocks are emerging as some of the biggest market winners post-election as the possibility of a divided government transpires.

The likelihood of a Democratic president and Republican Senate could keep the healthcare industry safe from shakeup that would otherwise happen with a progressive agenda.

"The Health Care sector is less threatened by major changes to current structure," Citigroup chief U.S. equity strategist Tobias Levkovich told clients. "The lower possibility of rising regulatory zeal and unwelcome legislation plus pre-election positioning leaves Managed Care and Hospital stocks in better shape."

Shares of UnitedHealth Group are up more than 17% since Monday and Merck & Co. and Abbott Laboratories have rallied 9% and 8%, respectively, this week. Cigna, which reported better-than-expected earnings on Thursday, is up 30% since Monday, on pace for its best week since November 2008.