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Medicare for All fears cause massive puke-a-thon in healthcare stocks

Written By | Apr 17, 2019
Medicare for All

Cartoon by Branco. Reproduced with permission and by arrangement with LegalInsurrection. (See link in article)*

WASHINGTON. We’ve often complained in these columns that in this century, headlines and rumors drive stock prices a lot more than facts, figures and corporate earnings. Once again, this asininity is playing out on Wall Street Wednesday as the entire group of healthcare stocks seems to be heading for an appointment with Armageddon. With Bernie Sanders and his fellow Communists already brandishing stump speeches promising Medicare for All, Nervous Nellie funds and investors have dumped healthcare stocks hand-over-fist in April thus far.

UnitedHealth gets hit by Medicare for All fears

Even great earnings reported by healthcare and Dow index standout UnitedHealth (UNH) weren’t enough to keep those shares from tanking over 12 sickening points after this morning’s opening bell.  It was in some ways UnitedHealth’s own fault for today’s continued pummeling in this sector. The company warned that the Democrat Socialists’ (is there any other kind) wild Medicare for All fantasies could very well destabilize the entire US healthcare system.

UNH shares are still doing penance but are trying to recover as we approach 2 p.m. ET. They’re “only” down $5.85 (minus 2.6 percent) at the moment. But that’s still a big decline, given that these shares were clobbered Tuesday as well.

More on Wednesday’s healthcare share puke-a-thon on Wall Street

Bloomberg elaborates on Wall Street’s obsessive and continuing Medicare for All stock puke-a-thon.

“The free-fall in health insurance stocks is reviving memories of the 2008 financial crisis on Wall Street.

“‘In recent days the stocks have behaved more like they did in the dark days of 2008-2010, when we were dealing with relentless EPS guidance cuts, a global stock market meltdown, a severe global economic recession, and a deeply unsettling ACA sausage-making process in D.C.,’ Stephens analyst Scott Fidel wrote in a note, after the insurance stocks, along with hospitals, lost $28 billion in market value on Tuesday.

“The S&P 500 Managed Health Care Index extended its slump on Wednesday, falling another 5.5 percent, led by losses in Anthem Inc., UnitedHealth Group Inc., Centene Corp. and Humana Inc. The benchmark is now down 13 percent for the year, significantly underperforming the broader market.”

Hope springs eternal when Bernie and the Socialists come preaching (but watch your wallet)

Goldman analysts offered some healthcare hope.

“Despite slashing their price targets on industry bellwether UnitedHealth as political concerns outweighed an earnings beat, some analysts — chief among them those at Goldman Sachs — remain optimistic that the sell-off will stop well before November 2020.”

Mallinckrodt and Allergan disappear into an investing black hole

Given the continuing Medicare for All headline risk, plus some likely profit taking, healthcare stocks don’t look so hot this month. Beside UNH, a great many remaining shares in this sector are plummeting today as well. Unfortunately, these include the previously buoyant shares of Mallinckrodt (MNK), down a whopping 10+ percent on the day after an awful Tuesday.

Also hit, in nauseatingly familiar trading action, our big position in Allergan is headed for destruction once again this week. Those shares are currently off nearly $7 per share to stand at $138 and pocket change at the moment on the usual thin volume. These hated shared can never catch a break despite a PE ratio that’s so low it makes utilities and bank stocks seem expensive.

More than making up for Tuesday’s half-decent rally, it now looks like these shares are heading back down to test their most recent lows during the Fed-led Q4 stock market debacle that damaged nearly every publicly traded stock before the storm concluded. Stocks could be just fine without all the nattering from Democrat-Socialists on the Hill.

The continuing problem with Allergan

The problems here are many, including the ongoing market overreaction to new or potential competition against the company’s top-selling products, Restasis eye drops and the company’s Botox line of anti-aging and personal appearance products.

But making matters worse, the company’s previously vaunted new product pipeline has been failing, at least near term. And in turn, these failures indicate a failure to replace the profits lost via the Restasis and Botox competition.

This 2-3 year run of consistent failures recently inspired the professional corporate raiders at Appaloosa to buy enough shares to mount a challenge to Allergan’s board by demanding that its CEO and Chairman roles get split, limiting the power of currently failing CEO Brent Saunders.

We suspect that as share-voting day approaches, Appaloosa’s bid seems likely to fail. That serves to decrease investor interest in the stock, as it may not get the “revival” pop many anticipated.

That, plus relentless selling on spectacularly low volume has combined to kill these share during April. AGN keeps trying to exceed what appears to be its current $150-151 per share cap. But each time the shares hit those numbers, waves of low-volume selling come in. In turn, that selling drags the shares down far more violently than usual.

How a decent stock can remain dead in the water. For years

All this means that the shares remain dead in the water for the indefinite future. Actual Q2 earnings numbers, on tap for early May, may or may not help. Likely the latter, as these share chronically lack a new-product boost.

Allergan’s PE remains spectacularly low for a major pharmaceutical company. But until Wall Street analysts see something really impressive from the company, they’re not likely to have nice things to say about this stock. And they may not be saying anything nice at all about this sector with the legion of communistic “Democrats” spreading across the US to pitch a Medicare for All fantasy that will fiscally kill off this country once and for all.

We have held our Allergan shares for a long time and for a substantial loss. We must now consider paring this position back by at least 50 percent. But not today.

Read also: Apple vs Qualcomm: Royalty dispute apparently settled as 5G looms.

You gotta know when to fold ’em

At times, when you hold a large, chronically losing position, you have to weigh the cost of lost opportunities. I.e.,if you just take your wretched losses, is it realistic to think that redeploying remaining capital from the transaction into a more lively stock or sector might not cancel your realized loss with a win rather than just holding the underperforming dog of a stock until its luck turns. Some day. Maybe.

We’ll think about that a bit more. But if AGN shares continue to circle the drain, we may take what remaining cash we can near term.

Time for optimism in healthcare shares? Maybe not yet…

Bloomberg gamely tries to conclude its healthcare piece with a touch of optimism. In doing so, the article glides over the Medicare for All flap.

“The drop for HCA is overdone, Jefferies analyst Brian Tanquilut told clients, noting ‘we will still need hospitals to be viable even if Medicare for All is enacted.’

“With health-care services now trading at steep discounts, BMO analyst Matt Borsch called yesterday’s sell-off the continuation of a ‘contagious unwind’ for once-favored stocks. ‘While we can’t predict the turning point here, we do not believe it is far away,’ he said.”

Cold comfort for investors watching sellers and short sellers drag their healthcare holdings off to the slaughterhouse.

— Headline image: Cartoon by Branco. Reproduced with permission and by arrangement with LegalInsurrection


Terry Ponick

Terry Ponick

Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17