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The NIB share price has surged 17% higher in May

One of the best performers on the S&P/ASX 200 index in May has been the NIB Holdings Limited (ASX: NHF) share price.

Since the start of May the private health insurer’s shares have rallied almost 17% higher.

Why has the NIB share price charged higher this month?

The key catalyst for NIB’s impressive form in May has been the Coalition’s surprise Federal election victory this month.

Labor had been planning to put a 2% cap on premium increases by private health insurers if it won the election. This was expected to put pressure on margins and limit NIB’s profit growth over the medium term.

But with Labor falling short at the last hurdle and the Coalition government never officially countering the policy, investors appear confident that NIB will now be able to increase its premiums by normal levels. In 2019 the average industry increase was 3.25%.

As you might expect, this isn’t just a positive for NIB. Also climbing higher this month have been the share prices of fellow private health insurer Medibank Private Ltd (ASX: MPL) and private hospital operator Ramsay Health Care Limited (ASX: RHC).

Their shares are up approximately 14% and 6%, respectively, since the start of the month.

The latter even reached a 52-week high recently. This was because many in the market believed that Medibank, NIB, and the rest of the private health insurers would put pressure on Ramsay and other hospital operators to cut their prices in order to offset the lower premium increases.

This would have weighed heavily on Ramsay’s margins and further impacted its growth at a time when it can ill-afford such a thing to happen. This year Ramsay has provided core earnings per share growth guidance of just “up to 2%”.

Should you invest?

I’m not overly convinced that this is the end of the matter and continue to believe that there are affordability issues that need to be addressed. In light of this and their strong gains in May, I plan to stay clear of these shares for the time being and will wait to see how things unfold in the coming months.

Instead, I would be buying one of these buy-rated shares that have been tipped as potential market-beaters.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended NIB Holdings Limited and Ramsay Health Care Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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