Forget CVS, Buy This Healthcare Stock Instead

CVS +0.63% CNC -0.30% XLV -0.49% ^GSPC +0.54%

Key Points

• Centene's stock is poised to gain if ACA subsidies are extended in December.

• The company's fortunes are closely tied to Medicare, Medicaid, and the ACA.

• 10 stocks we like better than Centene ›

CVS Health (NYSE: CVS) has been a huge outperformer this year. The stock is up about 79% so far in 2025 -- move than five times the return of the Health Care Select Sector SPDR Fund as well as the S&P 500 index. But there's a similar healthcare stock that's on sale right now, and might be a better option for investors.

I'm talking about Centene (NYSE: CNC). Based in St. Louis, the company manages government-sponsored health insurance programs like Medicaid and Medicare, as well as Affordable Care Act (ACA) plans.

The stock jumped this week on reports that President Donald Trump may propose a two-year extension for ACA insurance subsidies. Recall that those subsidies, which allow millions of Americans to afford health insurance, are set to expire in January without legislation to extend them. The recent government shutdown ended with budget-extension legislation from Congress that did not include action on the subsidies; rather, it merely promised that there would be a vote on them in December.

If the White House does push a plan to extend the subsidies for one or two years, it will likely garner enough Republican support to pass into law. That would be very good news for healthcare companies whose business is dependent on providing ACA health plans.

And Centene is the largest plan provider on the ACA marketplaces.

The stock has struggled in 2025

Centene's share price suffered this year as doubt grew about Republicans' willingness to extend subsidies; new cuts to Medicaid in the "big, beautiful bill" hurt it, too.

Then the price fell off a cliff in early July -- to an eight-year low -- when the company withdrew its 2025 earnings guidance. An actuary's analysis had found that market growth for Centene was lower than expected in 22 states, and patient morbidity was significantly higher than the company's previous assumptions.

As a result, the stock is now on sale, falling from more than $56 per share on July 1 to less than $26 per share five weeks later.

But it's been slowly rebounding since then, and it's climbed almost 19% over the past month. Shares got a nice boost in late October when the company reported earnings and revenue that bested Wall Street's expectations. And in the quarter, both medical costs for its Medicaid plans and its medical-loss ratio for the program were lower than expected. Management also boosted its guidance for full-year earnings from $1.75 to $2 a share.

Centene's financials and its share price are tightly bound to Medicare and Medicaid spending, as well as the fate of ACA-provided health plans. If you believe the ACA subsidies will indeed be extended in December, this stock is a way to capitalize on that.

Should you buy stock in Centene right now?

Before you buy stock in Centene, consider this:

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Matthew Benjamin has no position in any of the stocks mentioned. The Motley Fool recommends CVS Health. The Motley Fool has a disclosure policy.

Forget CVS, Buy This Healthcare Stock Instead was originally published by The Motley Fool