Medicare Advantage participants should fare well under a Trump administration, says Morgan Stanley In this recurring series, The Fly recaps where the top analysts on Wall Street say to put your money ahead of November's U.S. presidential election. In this edition, Vice President Harris says U.S. Steel should remain domestically owned and operated and Morgan Stanley outlines its stock picks in the healthcare space.
HARRIS OPPOSES US STEEL BUYOUT: Vice President Kamala Harris voiced her opposition to Nippon Steel's (NPSCY) pending purchase of U.S. Steel (X), Bob Tita of The Wall Street Journal reported. Harris said at an event in Pittsburgh that U.S. Steel should remain domestically owned and operated. President Joe Biden in March signaled his opposition to the deal without explicitly saying he would block the takeover, the paper noted. "We will continue to strengthen America's manufacturing sector," Harris said at a union hall in Pittsburgh, the city where U.S. Steel has its headquarters. "U.S. Steel is a historic American company, and it is vital for our nation to maintain strong American steel companies."
CANNABIS: Last weekend, former President Trump made comments on cannabis, indicating that the Florida adult use measure will pass the ballot in November, people should not be in jail for minor possession of cannabis and legal cannabis provides a safer avenue for consumers to use. While not a formal endorsement of cannabis legalization, Alliance Global Partners said it is encouraged by the continued shift in Trump's cannabis stance, from previously indicating support of medical cannabis, to now acknowledging the continued shift to adult use and potential benefits from it. The firm anticipates there will be an uptick in campaigning by both sides on the adult use measure over the next eight weeks, which could prove favorable in both pushing Democrats to act on cannabis legalization, lowering the risk of negative action against cannabis in a Trump presidency and even offering the chance for small steps in bipartisan legislature within a Republican presidency. The firm says its biggest takeaway is that cannabis is increasingly becoming bipartisan, particularly among notable politicians.
Publicly traded companies in the cannabis space include Aurora Cannabis (ACB), CV Sciences (CVSI), Canopy Growth (CGC), Cronos Group (CRON), Goodness Growth (GDNSF), Green Thumb Industries (GTBIF), IGC Pharma (IGC), Tilray (TLRY), Trees Corporation (CANN) and Trulieve Cannabis (TCNNF).
HEALTHCARE: Morgan Stanley said the election is unlikely to produce significant changes to the U.S. healthcare system, but there are policies to watch that could change depending on the election outcome. The firm said certain regulations requiring drug price and procedural transparency affecting hospitals and health plans are unlikely to change if there is a shift of power next year. While some healthcare policies might be changed through the tax code, including the extension of Covid-era ACA subsidies, material changes would require unified control of Congress by either party, the firm said. Changes that would represent an overhaul to the broader system that all featured during the 2020 Democratic primaries are unlikely to come to fruition, as such a change would require unified Democratic control of Congress as well as party unanimity on the preferred path, Morgan Stanley argued.
As far as specific stock picks, Morgan Stanley said Medicare Advantage participants should fare well under a Trump administration which is perceived to be more friendly to the program in the wake of the adverse rate notices and onerous risk model revisions. As a result, Humana (HUM), UnitedHealth (UNH), Elevance Health (ELV), and CVS (CVS) would benefit most from a Trump victory, while the primary beneficiaries of a Harris administration would be MCOs with ACA Exchange exposure as a Democrat win would increase the likelihood of the program's enhanced subsidies being extended beyond 2025. Cigna (CI) and Elevance would be relative winners in this outcome, the firm says. The firm also notes that drug distributors McKesson (MCK), Cardinal Health (CAH), and Cencora (COR) are inherently less directly tied to drug pricing vs. historically with 95%+ of branded drugs under fee-for-service contracts, offering greater visibility, and price performance for drug distributors would likely be less tied to election dynamics, particularly in this cycle.
In the biopharma space, Morgan Stanley said that in the event of a Democratic sweep, this may result in a market view that there is a higher likelihood of expansion of IRA negotiation provisions, which would likely be viewed as an incremental negative for the biopharma sector, while a Republican sweep would be viewed as an incremental positive for the sector, with potentially greater benefit for stocks where IRA uncertainty is potentially more impactful to forward outlooks, including Regeneron (REGN), Merck (MRK), Bristol Myers (BMY), and Eli Lilly (BMY). In biotech, the firm says BioMariN (BMRN) is a strong fundamental SMID biotech story that should face minimal impact from potential drug-pricing related election headlines, Neurocrine Biosciences (NBIX) is well-positioned in 2024 and through the elections, and Sarepta (SRPT) faces limited concerns related to IRA. In MedTech, relative beneficiaries under a Trump victory could include Boston Scientific (BSX), Steris (STE), and Baxter (BAX), while beneficiaries under a Harris victory may include GE Healthcare (GEHC), Medtronic (MDT), and Becton Dickinson (BDX). In life science tools and diagnostics, under a Trump victory, Morgan Stanley sees Thermo Fisher (TMO) as well-positioned to benefit, and while Thermo Fisher could effectively navigate any election outcome a Harris win would likely adversely impact profitable companies which pay taxes and have high pharma end market exposure. The firm views Natera (NTRA) as best suited to navigate a Harris win.
TRUMP A 'SLIGHT' FAVORITE: BTIG said late last week that it still views former President Trump as a slight favorite to win the election race given his persistent lead on the "top issues that matter" to swing state voters, but lowered the odds of him taking the White House to 55% from 60% to reflect recent developments. The firm noted that the last presidential election was decided by roughly 43,000 voters in just 3 states and said there is reason to believe this election could be just as close. The firm moved its odds of Republicans taking control of the Senate to 75% from 80% and said it believes that a second Trump administration could directionally lessen Fed independence and inject material volatility into markets. BTIG said it does not expect sudden movements as the Fed is too important to the global economy, but "steadily whittling away" central bank independence could have serious repercussions, especially given that the U.S. national debt is rising by $1T roughly every 100 days.
