Aetna and CIGNA, health insurance stocks, slightly lowered on Friday. Goldman Sachs analyst Matthew said reported on Friday that many of the public managed-care companies have been doing pretty good, but they have "tougher spots' ahead of them. He believes that this "though spot' will occur in the next 12 to 18 months.
Borsch then said, "With eerie parallels to the end of the last cycle in the mid-1990s, both valuations and profit margins appear to be at peak levels, while companies seek to squeeze the remaining juice from the lemon through merger-and-acquisition activity.' Even though the stocks did fall on Friday, they did not close as low as they had traded previously during the day.
Borsch's favorite managed-care stock - Aetna - fell 1.7 percent - down by $1.53 for one finished $89.94 share. There were health insurance stocks that fell a bit sharper than others. For example, WellPoint Inc. dropped $2.05, or 2.7 percent, to a $74.89 a share. UnitedHealth Group also fell 2.5 percent, $1.59, and closed at $60.94 a share.
Borsch happens to believe that stocks seem to be overvalued at times. The valuation of one's stock is pretty much based on projected earnings per share for the company and the ratio of its price.
Certain stocks are trading at a 20 percent premium to the S&P 500, Borsch said, while others, like Aetna is trading at 16 times the Goldman Estimate for the 2006 earning, making it a lot more attractive to people than many other insurers.
Borsch also has concerns about the fact that companies have a higher risk from the industry's cycles because they are more and more dependent on earnings from fully insured employers.
