Welcome to power lunch. Im melissa lee. All three major averages in the red. Nasdaq lower for the first time in four sessions. Among the biggest losers on the nasdaq 100, activision. Ty. Welcome everybody. Im tyler mathisen. Shares of hain celestial, an accounting probe. Much more on this story straight ahead. Were seeing a big move in oil once again. Crude touching its highest level in a month or so, back above 46 a barrel. And a Trump Campaign shooting down reports that former fox news chief roger ailes is advising the Trump Campaign specifically on debate preparation. The New York Times reported earlier today that the two were working together ahead of the president ial debates. Michelle. Tyler, i am michelle carusocabrera, and we begin power lunch with another big blow to obamacare. One of the nations Largest Health insurers is pulling out in all but four states. Cnbcs Bertha Coombs is working that story for us. She joins us with the details. Bertha. Michelle, its a sharp reversal from aetna. They announced a couple weeks ago during Second Quarter earnings that they would be reevaluating their participation in the obamacare exchanges. Now they say they are slashing that participation by 70 , going from 15 exchanges this year to just four states next year. The states they will be in include delaware, iowa, nebraska and virginia. The reason, they are losing money. They booked 230 million in pretax losses in the Second Quarter. So when you look at the picture, the fact that humanas also pulling back, united announced a big pullback, youre going to see united in just about three states, maybe three, thats down from more than 30. Youre going to see aetna in four, down from 15, humana in 11 down from 15, anthem so far says theyre staying put. So that would mean if they stay put theyll be in 14 states next year. But that means in many states you could see hundreds of thousands of people having to switch plans because their insurers are leaving. The insurers today are lower on that news. Nonetheless, analysts say for aetna trying to stanch the bleeding is actually good for the bottom line. Now, federal Officials Say theyll still be plenty of competition in states like georgia and texas. Theres still plenty of other insurers left. But in some cases you are going to see some counties in this country in areas of north carolina, South Carolina where theyll just be one plan. And in arizona where united and aetna and even the Blue Cross Blue Shield of arizona have said theyre pulling out, they will have none at the moment. So officials there are scrambling to find coverage. Yeah, theyre going to have to figure something out in those counties. Thank you, bertha. Lets bring in Senior Research fellow and Health Care Policy with george mason university. And doctor of the university of pennsylvania also involved with the health care act. When you read aetnas statement, they say, listen, the pool that were insuring is a lot less healthy than we expected, sicker than we expected, more elderly than we expected. Brian, in the Insurance Industry they call that adverse selection. The people who need the insurance the most are buying it so theyre more costly. This wasnt supposed to happen. Young people were supposed to join. The pool was supposed to be bigger. Why is this failing . Thanks so much for having me onto discuss this important topic. When the law passed, the experts anticipated there would be about 24 Million Exchange enrollees in 2016. And the way the laws complicated structure worked is insurers needed adequate number of those enrollees to be young and healthy, to offset losses that insurers would face on older and sicker enrollees. And it turns out that the coverage available through the exchanges is really only attractive to people who either receive large subsidies to purchase the coverage or who are relatively sick and expect to incur large medical expenses. But there were fines, brian. I thought if i dont sign up for health care, i will be fined. Dont those fines incentivize people to buy it . The fines incentivize some people to purchase coverage, but the fines are relatively small compared to the price of the premiums and the large deductibles that were seeing purchased for exchange plans. And what were seeing is that most individuals are making the economically rational choice not to purchase the coverage because the coverage isnt worth it. Dr. Emanuel, what do you say to this situation . Should the fines have been bigger . Im seeing the fine is 1,000. But some premiums are 5,000 or 6,000 a year. Lets back up to the aetna case. I mean, its very hard to know what the truth is of the aetna case. In february and then again in april you had the ceo saying, look, weve got a million people. He specifically said that he thought that the going into the exchanges was a good investment. And then in may you had one of the aetna spokesman saying we have no plans to withdraw from our 15 markets. As a matter of fact, we might expand to new jersey and indiana. Now, maybe then they were trying to butter up the department of justice to approve their merger with humana, now to when the government has opposed the merger they are saying, well, you know, weve got such losses its not such a good investment. Its very hard to know what the truth is. Its also very hard for us on the outside so are you saying wait. Youre saying its not true the 00 million in losses are not true, that in fact this is perhaps politically motivated because theyre angry at the doj for not allowing the merger . Again, i think we simply dont know. And remember, there are lots do you deny adverse selection . First off. Is that happening . No. We do know that the pool coming into the exchanges in general has been sicker than the government expected. And i think brian pointed out correctly that the number of enrollees has been less. I think there have been several reasons for that. One is obviously the initial bad publicity around the rollout. A second is i think that the website wasnt as good as it should have been. And the third thing was we havent had the penalties kicking in yet. So as pointed out, people havent really until this year begun experiencing the penalties. And the government i dont think has adequate the government hasnt adequately made clear to people that they will pay a big penalty if they dont go in. The centers for medicare and medicaid saying that the per month cost per patient has remained the same from 2015 and 2014, essentially meaning that the pool has remained as sick as it was in the beginning. And we also have United Health and we also have humana saying were going to scale back as well. Why is it so hard to believe aetnas case in pulling out of 11 states . I think thats a really good point. Were not doctor. This has to be a long Term Investment for people. Youve got to educate people who havent had insurance. But why does it have to be a long Term Investment for a publicly traded company . I do think the government needs to do a better job explaining to people the nature of the subsidies and make it much clearer to people that there is a serious penalty coming in if they dont get it. I think that as a part of an Advertising Campaign is going to be critical. I do think we need to improve the pool. There are still millions, tens of millions of people who havent been insured who are eligible who need to be insured. And that is partially a marketing campaign, partially a campaign of showing people how much it actually costs, not the Sticker Price that theyre seeing. You know, brian, first off this deal thing, i understand what the doctors saying. Weve heard this from others. United health they did the same thing not involved in a deal being challenged by the doj. May be a red herring, who knows. Maybe the doctor could answer this as well, brian, were talking about how to pay, how to pay, how to pay, why are we not talking about why more, a, a hospital stay in the United States costs double the next highest nation. And also, why do we consume so much health care as a nation . Yeah, i mean, i think those are really important questions. One, to put the aetna decision in context, weve seen humana withdraw from 88 of the counties where it was participating. United health care exit 30 of 34 states where it was participating. And 16 of the 23 Health Insurance cooperatives started with funding through the Health Care Law have collapsed. So its not these large losses arent isolated to one Insurance Company. They are systematic, they are occurring across the country. And we can have upwards of 1,000 counties next year where theres only one Health InsuranceCompany Offering coverage. Let me make two points in counter to brian. First, united, and it was well covered, was a very late entrance and a reluctant entrance into the exchange and never actually did a lot of work to prepare themselves. Their exit was actually not that big a surprise. Humana, remember, theyre the other half of the aetna deal. And so its quite clear. Let me also answer dont say its clear. What are you accusing aetna of lying saying their losing out not 200 million . I think there is a political well, as i said, we dont know the truth and there may well be a political motive. I think thats what you think. By now youve said it so often i think the audience believes you believe theres a political motivation. Theres also political pressure on the other side. Let me go to the other half of your question about the health care cost. Please. Because under obamacare for the last six years we have seen a tremendous slowing of Health Care Costs. As a matter of fact, in the last few years both for medicare and medicaid weve actually seen on a per person basis negative growth. That is were saving more money. Theres plenty to do in the country to save more money. We know that, for example, drug costs have been abnormally high for the last few years. Theres money to be saved there. We also know that hospitals have actually begun increasing utilization and prices have begun increasing. Theres plenty to do. And the government is doing it. The Affordable Care act gave the government powers to change how it pays to incentivize doctors and hospitals to improve the quality why cant these companies that are pleading poverty here that theyre taking these big losses, why are some staying in presumably theyre either making money or the losses are not so significant that they feel the pressure. Let me im asking brian, doctor, and ill let you get in in a moment. Why cant why are some staying and either making money or having low losses . And why cant the companies that are getting out raise their premiums to mitigate the losses that they are incuring . Thats a very good question. One, i think the loss we should put in more context. Insurers have received enormous back end subsidies the first three years and making losses even receiving these large subsidies. We have seen some Insurance Companies being profitable selling exchanges. Most experience with medicaid managed care, and theyre selling extremely high deductibles and Narrow Networks with few providers and hospitals. Let me go back to the point dr. Emanuel raised on Health Care Costs. Hes right Health Care Costs have slowed down, the rate of growth has slowed down, but thats happened across the entire globe. And most economists attribute almost that entire effect to an extremely slow economic recovery. And the evidence on medicaid spending is actually the opposite. Medicaid spending per enrollee is actually 50 higher than the government expected just last year. That was in a new report released last month. Yeah. I guess, doctor, i thought you would agree with my point because what im trying to say is its not a political statement. 60 of americans are on a longterm prescription drug, 30 of americans are either severely overweight or obese. Why arent we diving instead of fighting over how do we pay, why dont we argue more about how do we prevent people from getting sick in the first place so we dont have to pay . Wheres that discussion . Everyone wants to compare us to europe. Youve been to europe many times, im sure, go to europe, okay, portions are smaller, people live differently. The Affordable Care act was largely about that was for the doctor. Yeah, brian okay. I would say im 100 in agreement with you. And i think the essence of getting us to really work with people to keep them healthy, keep them out of the emergency room, out of decrease hospitalizations, actually take their medications reliablely, get on a diet, the key to that is changing how we pay doctors and hospitals to incentivize them to actually focus on health care, not just taking people when they present with illness. And that change is something the government is working on. These new releases that youve heard about, bundle payments, Accountable Care organizations, they actually do change the incentive for doctors and hospitals. And they are making a difference. And the recently the medicare has actually announced theyre doing a lot more bundles because they are turning out to actually change how people practice. And that change in practice, which youve just stated, is the key to longterm success. We cant look at this thing every quarter. Weve got to look at it over a decade. Thank you, gentlemen. Were going to leave it there. Dr. Emanuel and also brian blase. Thank you very much. Thank you. Now to a market flash with seema mody. Hey, melissa, bring the Health Care Discussion back to markets because hospital stocks taking a hit as insurers cut obamacare plans. Big components like hca holdings and universal health down between 1 and 2 today tracking for worst day this month. Amsurg, tenet health down 1 or more with amsurg on pace for sixth negative consecutive session. Both down 8 over that period. Seema, thank you very much. To josh lipton we go to a news alert. Tyler, im here at intels big annual developer show in San Francisco where the company just introduced project alloy. Now, this is an allinone Virtual Reality headset. All in one means walk around in Virtual Worlds untethered. Projects should be in the market by the back half of next year. Also new partnership just introduced between intel and microsoft to bring windows holographic to mainstream pcs running windows 10. Intel stock not doing much today though up about 15 in the past three months. Guys, back to you. All right, josh, thank you very much. On deck, a lifelong republican ceo is now prepared to check the box for hillary clinton. We are going to find out why. But first, your next guest says this is one of the most undervalued stocks he has ever seen. The name and the reason hes making that bold call next. Welcome back to power lunch everybody. Im tyler mathisen. The markets taking a bit of a breather right now after a trifecta of record closes yesterday for the dow, the s p and nasdaq. Here to chat about the broader markets scott wren, senior Global Equity strategist with wells fargo investment institute, and joining us onset is steven denicolo who manages 9 billion, just 9 billion . At fedderated kaufman funds. Equity markets for the past however long has not been because of a dynamic Earnings Growth scenario but rather multiples have expanded. People are willing to pay. Youre nodding, right . People are willing to pay more for every dollar for the lack of earnings that there are. Do you see it that way . Well, ill tell you, tyler, it took a long time for us to get to fair value, at least based on the work that were doing. And now what youve seen is, you know, if you look at first call earnings, 16. 7 has been the median 30year number going back. You know, were in about 18 or a touch over right now. And whats pushed it up over that median hasnt been, you know, a lot of fundamentals and things like that. I mean, things are slowly improving. Well see better Earnings Growth in the third or Fourth Quarter, but a lot of it has just been a sense that, hey, the u. S. Economys not going to fall off a cliff here. Were moving slowly in the right direction. Its a little more dependable, so i would argue that multiples are pushed a little bit beyond the median, not far. Valuations are not stretched. And its been largely due to a little bit more confidence out there on the part of investors. Steven, talk to me about that point that we were just discussing here. It would seem to me that it would suggest that if i can actually find companies that are growing earnings nicely, i ought to be really chasing after them and willing to pay up for them. Sure. So its a fundamental question, philosophical even. What do you pay for flat growth . If you look at the best performing sectors yeartodate, its utilities. What are the biggest . Southern companies, duke energy, if youre buying duke energy, youre buying lowest dividend yield since it went public in 1978. For the First Time Ever investors are focused on actual Earnings Growth. The way we look at stocks is the way were looking for companies that can create their own shot, create their own offense in any market and grow regardless of whether gdp is zero of 1 . Its price has gone up and dividend hasnt risen commensurately. Correct. We have a case and point of one of these companies that you want to talk about here. Were going to call it a mystery chart. I want you to describe the company. It is already up 84 yeartodate. You think it can double from here describe the