For investors willing to gamble that Congress will hold popular programs like Medicaid sacrosanct during their budget negotiations, Deutsche Bank has a suggestion: Buy publicly traded hospital stocks.
A gauge of the group has tumbled some 18 per cent from its September apex. Shares of HCA Healthcare Inc., Tenet Healthcare Corp. and Universal Health Services Inc. have been under pressure as legislators weigh substantial cuts, including to safety-net programs like Medicaid that cover services for low-income Americans. To analyst Pito Chickering, the selloff has left hospital stocks ready for a relief rally as soon as budget policy becomes clearer.
“The stocks have effectively been dead money and trading within a narrow band,” he wrote in a research note Tuesday. “Over the coming months, we expect incremental clarity on the federal budget that will give investors’ confidence Medicaid’s worst-case scenario won’t happen.”
Hospitals across the board have struggled under the weight of rising costs and labor shortages since the pandemic. That’s driven many nonprofit facilities to shutter. The prospect of cuts to Medicaid, a major revenue stream for hospitals, has weighed on the group.
To Chickering, the rout in hospital stocks is unwarranted because no Senator has voiced support for cutting Medicaid benefits, and that’s unlikely to change as 2026 midterms approach.
Still, with many nonprofits operating at low or negative margins, “gutting Medicaid could cause a material portion of US hospitals to become distressed,” he noted.
Ultimately, though Chickering expects the current policy baseline to be “the path of least resistance and most likely outcome.”
Hospital operators were outperforming on Tuesday with the S&P Composite 1500 Health Care Facilities index climbing as much as 2.4 per cent and Universal Health leading the gains.
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