I JUST SPENT 15 MINUTES

filling out an eight-page insurance application, and I'm delighted. That sounds nutty, I know, like someone bragging about a low-impact root canal. But by the end of this column, you might share some of my enthusiasm.

I'm writing this month about the managed-care industry. That's Wall Street shorthand for companies that sell health insurance and run health maintenance organizations. These include familiar names like Aetna as well as low-profile and easy-to-mix-up outfits like WellCare, WellChoice and WellPoint. They're all middlemen in regulated businesses that are outwardly unappealing.

Mention health insurance and most people think of endless forms, incomprehensible jargon and long waits on hold hardly the place you'd expect to find investment opportunity. The dozen or so publicly traded managed-care companies have a total market value of about $195 billion, less than either Johnson & Johnson or Pfizer. Managed-care executives keep their heads down too. Few policyholders realize that Indiana-based WellPoint runs Blue Cross plans in California and 12 other states. WellCare administers Medicaid in Florida, and WellChoice is Blue Cross in New York a fact that's nearly impossible to discover from the Empire Blue Cross web site.

Despite the obfuscation, shareholders aren't complaining. During the past decade, managed-care companies solidly outperformed the market up over fourfold, while the S&P 500 has barely doubled. Within the health care sector, they stand out too: Since 1996 these boring outfits have beaten glamorous niches like biotech and medical devices.

Despite this record, I think these companies are still wonderful and underappreciated investments. I'm not alone. Bill Miller, who runs Legg Mason Value Trust and is widely regarded as one of the best stock pickers around, has more than 12 percent of his portfolio in managed care. Several other top value managers have double-digit positions. The attraction is straightforward: Politics, economics and insurance fundamentals are aligned in a particularly auspicious way. Charles Boorady, who covers managed care at Smith Barney Citigroup, says the industry is about to enter its "Golden Age."

If that's true, it isn't reflected in share prices. Managed care has always been the low-cost way to own health care, and it still is. The industry's median price/earnings ratio is 16; the median price/book ratio is 2.7. Those numbers are roughly in line with the market and well below comparable figures for other health care stocks, where P/Es above 30 and double-digit price/book ratios are common.

Growth rates don't explain the gap. Analysts expect profits at managed-care companies to expand an average of 16.8 percent annually over the next five years. That's a shade faster than estimated growth for the rest of the health care group and considerably better than the 11.7 percent estimate for the S&P 500. Converting these numbers into PEG ratios (price/earnings divided by growth rate) highlights the difference: managed-care PEG, 1.17; health care PEG, 1.36; S&P 500 PEG, 1.48. Value investors generally start twitching when PEG ratios drop to near or below 1.

Managed-care stocks are also a technology play. Insurers' profits get fatter whenever paperwork goes electronic, e-mail replaces waiting on hold and patient records move from clipboards to servers. All of those things are finally and gradually happening (as I discovered applying for new coverage via the Internet). And the impact could be profound.

You can also think of managed-care companies as the antidrug stocks. They're the drug industry's major customers, and they stand to gain from its troubles. Next year, for example, patents will expire on products with annual sales of more than $15 billion. Carl McDonald at CIBC World Markets thinks that alone could translate into a 3 percent earnings boost for managed-care companies.

Before you get too excited, it's important to understand conventional wisdom. Critics say managed-care stocks are cyclical, like much of the rest of the insurance industry. So they ought to trade at a discount. When times are good, companies cut premiums to gain market share. That pulls profits down. Then premiums creep up, profits gradually return, and the cycle starts all over again. Traditionally, this has happened every three years.

In the past decade there have been troubles at individual companies, but the industry hasn't seen a down cycle. Maybe disaster is overdue, or maybe something has changed. Three factors support the no-more-blowups position: Nonprofit Blue Cross plans, which used to be big discounters, are now largely investor-owned. Companies also use actuaries more effectively today and rarely offer long-term rate guarantees. And a Medicare rule that had the perverse side effect of causing low-ball pricing of corporate plans is gone.

Managed care serves three markets, and last year's health care legislation means good things are happening in each segment. First, there is Medicare business, which comes from selling add-on "Medi-Gap" coverage or "Medicare Advantage" policies that are partially subsidized. There is Medicaid business, where states buy services from the industry. Finally, there are private policies, sold to either companies or individuals.

The Medicare market has the biggest growth potential, mostly because the government starts paying for prescription drugs next year. That should trigger a dramatic expansion of private "Medicare Advantage" plans, which currently serve only about 12 percent of all Medicare participants.

Medicaid, currently the industry's fastest-growing segment, continues to expand. States run these programs for the federal government, and one popular reform is to contract the work to private companies. They introduce managed-care concepts (personal physicians, required checkups, preferred providers) to low-income participants, a process that often reduces costs and improves service. Georgia, for example, will shift about 800,000 people to private plans next year an incremental $1.4 billion in revenue for managed-care companies.

The private market, meanwhile, gets a boost from Health Savings Accounts, the new IRAs for health care, and the object of my recent application. These plans are off to a slow start. But one-third of buyers have no previous insurance a major new revenue source in a business where incremental dollars go quickly to the bottom line. At Aetna, for example, adding 10,000 new customers boosted earnings by 2 cents per share.

The eight companies in the accompanying table are my favorite managed-care investments. Picking the right stock, however, is less important here than in some other industries. Managed-care companies all have diversified product lines, and more than in most other businesses their shares tend to move as a group. Still, if I were buying just one, I'd opt for a national name, such as Aetna, UnitedHealth Group or WellPoint. Newly aggressive Aetna will benefit from the shift to HSAs. United, despite its lavish executive compensation, has an enviable record of growth via acquisitions. And WellPoint is a play on the vaunted Blue Cross brand.

Otherwise, Humana and PacifiCare have an above-average portion of Medicare business and much to gain from new opportunities there. Health Net is a turnaround, rebuilding after a dispute with doctors and hospitals in California. Coventry serves mostly medium-size employers and has a reputation for controlling costs effectively. Sierra, a perpetual takeover candidate, trades at a premium because of its strong position in fast-growing Nevada.

Except for token distributions at Aetna and United, managed-care companies don't pay dividends. That's unfortunate, but perhaps a political necessity. It's hard to boost insurance rates when you're mailing out fat checks to shareholders. Still, the industry has a superb record of buying back stock over $6 billion worth last year. That number could grow by 20 percent in 2005. One reason is that managed-care companies are chock-full of cash. (The table indicates cash as a percentage of market value.) Even though much of this hoard is required by regulators, companies still profit from the float. Last year investment income accounted for about 30 percent of the industry's earnings a number that will continue to rise as the Federal Reserve raises interest rates.