US STOCKS-Wall Street gains on health insurers, S&P near intraday record

Tue Apr 2, 2013 1:51pm EDT
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* S&P 500 less than 0.5 percent away from all-time high

* Healthcare stocks rally, Humana is S&P's top gainer

* Indexes up: Dow 0.6 pct, S&P 0.6 pct, Nasdaq 0.7 pct

By Angela Moon

NEW YORK, April 2 (Reuters) - U.S. stocks rose on Tuesday, pushing the S&P 500 within striking distance of its all-time intraday high, as healthcare stocks surged after a government decision raised prospects of higher profits.

The group gained after the U.S. government dropped plans to cut payments for private Medicare Advantage insurers and instead said it would raise them by 3.3 percent.

Humana, which derives about two-thirds of its revenue from Medicare Advantage business, rose 7 percent to $80.11. UnitedHealth Group rose 6.2 percent to $62.67, and Cigna Corp was up 4.1 percent to $65.49.

Despite the gains, stocks in the healthcare sector are still seen as cheaper than the overall market. Humana, which has a market cap of about $11.9 billion, has a forward price-to-earnings ratio of 9.4, below the S&P 500 P/E average ratio of about 16.5. UnitedHealth has a P/E ratio of 10.6 and Cigna has a P/E ratio of 9.7.

"We do think that healthcare stocks are a nice combination of dividend yields, growth and low valuations and we are very constructive on the sector," said Jim Russell, senior equity strategist for U.S. Bank Wealth Management in Cincinnati.   Continued...