Buy Coventry Health (CVH) and UnitedHealth (UNH) Over Wellpoint

3/11 - "We continue to favor CVH and UNH. CVH has a history of correctly gauging local market medical cost trends and pricing appropriately and UNH is working to reprice its commercial book of business in 2008."

"The group appears very washed out at this point, but calling trough multiples is always hard...Our experience is that operating stumbles in managed care are more often driven by poor pricing than sustained spikes in overall medical cost trends. Looking back over the years, operating stumbles (to varying degrees) at Oxford (1997), CI (2002), HNT (2004), AET (2006) and UNH (2007) have tended to be relatively company specific pricing-driven or execution issues. Our experience is that since medical cost trends tend to be more stable than pricing or general execution, the latter usually drives MLR volatility more meaningfully. Nevertheless, the issue of medical cost trend direction and magnitude, as always, bears watching."