How To Profit From ObamaCare

With Washington waging a fight to the death over the future of Obamacare, confusion is everywhere. Individuals are trying to understand the implications of the law on their healthcare, while investors are trying to figure out how it will affect their portfolio.

Of course, the first thing investors have to do is decide whether they believe the program will survive as designed or whether Republicans will be able to delay or repeal chunks of the bill. Then investors must sort through all the messy details in the legislation to identify likely winners and losers.

The starting point for the legislation is that 32 million uninsured Americans will be required to purchase insurance or face penalties, and health insurers will no longer be able to deny coverage based on applicants' health. A lot more people will receive a lot more health care.

That means more costs for the federal government: $630 billion to expand Medicaid. And more government revenues: big Pharma will subsidize Medicaid and Medicare by about $80 billion over 10 years through rebates on prescription drugs; branded drugs will face new excise taxes and discounts; and makers of medical devices will pay a new 2.3% tax on products sold in the U.S.

Hot Performing Stocks To Watch For 2014

To try to "bend the curve," a term used to describe slowing growth in healthcare costs, Obamacare provides incentives to use generic drugs and avoid the more expensive branded versions. To try to make healthcare more effective, Obamacare requires that all medical records be electronic by 2014. Congress has set aside $19 billion to help hospitals and doctors convert.

The changes imposed by this law will create some big winners and some big losers, and we created two motifs—thematically weighted baskets of stocks—that simplify the choices for investors. One is appropriately called Obamacare: it is designed to provide exposure to companies that will gain if the law rolls out as planned. The second is called Repeal Obamacare focuses on companies that stand to lose under Obamacare and, as a result, gain if sections are delayed or repealed.

So far, the Obamacare motif is ahead with a gain of 32.8% year-to-date, while the Repeal Obamacare motif has gained 14.3% versus 17.8% for the S&P 500 over the same time period.