Ahead of Obamacare Ruling, S&P Likes Health Care SPDR

The U.S. Supreme Court is scheduled to issue its final ruling on the Affordable Care Act, also known as Obamacare, on Thursday. The looming decision has health care stocks and ETFs under the microscope. The Affordable Care Act, the most sweeping piece of health care legislation the U.S. has seen in generations, is viewed by supporters as one of the crown jewels of President Obama's first term and may be crucial to his reelection efforts. With ample controversy surrounding the legislation, the Supreme Court's ruling has the potential to impact health care equities and ETFs. Ahead of the decision, S&P Capital IQ maintains an Overweight rating on the Health Care Select Sector SPDR XLV. "The best scenario for the health care industry would be a ruling that the individual mandate is constitutional and the health care reform law continues to be implemented as scheduled," S&P Capital IQ said in a research note. "Under this scenario (Scenario 1), the health care sector would benefit from approximately 32 million additional insured customers (phased in from 2014-2019)." A second possible scenario is that the Supreme Court rules the individual mandate unconstitutional "and determines that the mandate is the central component of the overall health care reform law and cannot be severed from the rest of the law," S&P said. The research firm said such a decision would have a neutral impact on the health care industry at large. The final scenario would be the Supreme Court striking down the individual mandate, but upholding the rest of the law, a move that could adversely impact managed care providers, pharmaceuticals makers, health care facilities operators and health care services providers, S&P said. XLV, which has an expense ratio of 0.18 percent and $4.4 billion in assets under management, is home to 54 stocks. The fund's top-10 holdings include Dow components Johnson & Johnson JNJ, Pfizer PFE and Merck MRK, all of which receive four-star ratings from S&P. Other top-10 holdings in XLV include Abbott Labs ABT, Amgen AMGN, Bristol-Myers Squibb BMY and Express Scripts ESRX. Express Scripts garners a five-star rating from S&P while the others receive four stars.