Companies that went on a debt-fueled acquisition binge when times were good start scrambling to cover their interest payments. High-flying startups with little cash flow but terrific growth start to see investor sentiment come crashing down.

#-ad_banner-#I’m not saying an end to the six-year bull market is coming soon, but investors may want to start looking for companies with the balance sheet health that will make it through lean times.

I’ve found one industry that has seen strong, reliable cash flows that aren’t likely to stop soon — if ever.

The Affordable Care Act Has Been A Cash Machine For Healthcare Companies
Passage of the Affordable Care Act (ACA) sent enrollment in Medicaid and the Children’s Health Insurance Program (CHIP) soaring. These two programs provide coverage for low-income families that otherwise might not be able to afford it and is now subsidized under the ACA. Nationwide enrollment jumped 19% adding 11.2 million to the programs from the summer of 2013 to January of this year.

States that implemented the ACA Medicaid expansion plan have seen even faster growth with a 26% jump in enrollments. The trend won’t end soon. Enrollment rates are still climbing and some states haven’t adopted the expanded programs yet. Nationwide enrollment in Medicaid is expected to keep growing, adding two million people every year through 2020.

Molina Healthcare (NYSE: MOH) has been one of the biggest beneficiaries of the ACA. It provides health care services to Medicaid and low-income recipients in 11 states. Enrollment has increased to more than 2.6 million this year, a 36% increase since the ACA was passed in 2013.

Molina has $3.59 billion in cash and short-term investments on the balance sheet against just $718 million debt. That amounts to net cash of 76% the company’s market cap and $51.15 per share. Cash flow from operations surged 457% to $1.06 billion in 2014 and is still going at $1.47 billion over the trailing four quarters.

Molina announced the acquisition of Providence Service Corporation for $200 million in September and HealthPlus Insurance in May but even those acquisitions won’t sap Molina’s huge cash balance.

That kind of cash and cash flow leaves the company a couple of attractive options.

Multiple Scenarios For Investors … All Of Them Good
The strength and certainty in insurance business around the ACA could attract consolidation in the space. Companies within the financials sector could look to the strong cash flow to smooth more volatile cash flows in other business lines.

Insurer Humana (NYSE: HUM) was said to be an acquisition target earlier this year on its growing Medicare business. HUM trades for an enterprise value of 0.43 times sales. Molina is currently priced at an enterprise value of just 0.12 times trailing sales and could also make for a very attractive target. Shares are nearly completely backed by cash and the company has added nearly a billion in balance sheet cash over the last four quarters.

At a market cap of just $3.8 billion, Molina could easily be acquired by any of the larger insurers with market capitalizations from $27.2 billion at Humana to the $114.1 billion behemoth UnitedHealth Group (NYSE: UNH).

Shares of Molina do not pay a dividend and the company does not regularly repurchase its own stock. Barring a huge acquisition, management will need to decide what to do with the excess cash and some form of shareholder return is likely.

Shares have sold off recently on profit-taking and the rollout of Hillary Clinton’s campaign promise to cap prescription drug costs and to push for discounts in Medicare pricing. Shares are down 19% since mid-August but are still up 23% for the year. That makes today’s price of around $65 an attractive entry point. Molina could be worth much more on a buyout, upwards of $112 per share on an enterprise value to sales ratio (a measurement used to compare evaluate how much it would cost to buy the company’s sales) of just 0.20 times.

Risks To Consider: Molina exclusively serves the low-income group of Medicaid and in the CHIP program and is exposed to legislative risk around lowering health insurance costs. Headline risks could cause the drop quickly though balance sheet strength would remain.

Action To Take: Buy shares of Molina Healthcare for nearly the amount of net cash on the books and enjoy several potential upside opportunities from this cash machine.

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