WASHINGTON, November 19, 2015 – This morning’s good news: The Maven took a small chance on the Square (symbol: SQ) IPO last night and, voilà! SQ opened up sharply, trading up roughly 45 percent at Thursday noon, up $4.00 at $13.00 per share. Trading is wild and volatile and who knows where SQ will be at the close? However, our discount brokerage more or less requires us to hold IPOs for 31 days following the IPO*, so we can’t flip this puppy anytime soon. And a lot can happen in an IPO’s first month of trading. Fingers crossed.
Read also: Square [SQ] goes public (at last) – and pops
On the other hand, Mr. Market dealt the Maven an equal and opposite beating this morning, hammering his modest but somewhat expensive position in healthcare provider Molina Healthcare (MOH) savagely Thursday morning. The stock is down a sickening $5.79 per share at approximately $57.50 per share, off a whopping 9+ percent from Wednesday’s close.
The reason? Mega health insurer United Healthcare (UNH) announced that its earnings were not going to be quite up to par in 2016, and, in fact, could start drowning in red ink, due to the ever-increasing costs and decreasing profitability of providing healthcare policies under the Obamacare healthcare exchange mandate.
As a result of this, the company said, it was cutting back its marketing for its 2016 plans and seriously considering withdrawing from offering Obamacare coverage altogether for 2017, based on next year’s numbers. (Given how the system works, they can’t back out for 2016, as the enrollment period is already well underway.
UPDATE: After we posted our article this afternoon, CNBC chimed in with an update to this breaking story confirming a problem we’ve long been predicting in this column:
“Obamacare observers said that UnitedHealth’s announcement underscores financial challenges facing insurers that sell coverage on Affordable Care Act marketplaces, challenges that could lead to less choice and higher prices for exchange customers if UnitedHealth bolts the exchanges, and if other insurers follow suit.
“That has included the planned shuttering of what will be more than half of the new co-ops created to sell insurance on the exchanges, the government’s announcement that insurers will receive just a small fraction of the money they could have expected under a financial risk protection program, and stories detailing how rising premium prices and deductibles are causing consumers to question whether to buy exchange-sold plans.”
Oh-oh! Every other major healthcare company involved in the system tanked early and hard in sympathy, and small wonder, including other insurance giants like Anthem (ANTM), Aetna (AET), and, you guessed it, Molina (MOH), all of which are suffering equally horrible fates on today’s ticker. Obamacare fallout will get uglier and uglier. Count on it. Democrats can’t count. They can only buy votes by giving away “free stuff” by fleecing the middle class. Listening, middle class?
Back to stocks, some of today’s horrendous downside slaughter in healthcare provider stocks is due to investors and funds bailing out of these stocks, fearing what will happen next. The rest, no doubt, is due to those relentless shorts, some of whom may have been tipped off that this announcement was coming. And, of course, there’s always that cadre of HFTs who are thriving off driving this particular headline, making things even worse than they already are.
Clearly, investors seem to be reasoning, if one of Obamacare’s largest individual providers is considering calling it quits, maybe everyone else’s bottom line is taking it in the ear as well. This would spell disaster for the almost-universally loathed, ill-advised healthcare-income redistribution scheme that Obama and the Democrats crammed down the electorate’s throat in spite of longstanding and still-continuing voter opposition to this horrendous and costly experiment in the Europeanization of America.
(BTW, the Maven [disguised as his alter ego, The Prudent Man] will be putting together a follow-up column on Obamacare this weekend, along with another one on the impending disaster that will shortly face about 30 percent of senior citizens currently on Medicare. Don’t miss the next thrilling episode of “Fundamental Change.”)
The Maven himself is now stuck with a dilemma: Dump MOH for a nasty, roughly 10 percent loss, which now exceeds his target stop loss for this holding? Or hold on and wait for some sort of bounce, and then get out? Or simply hold it?
The latter doesn’t seem to make much sense, as several of the Maven’s generally reliable sources have MOH high on their recommended lists, due to the fact that this particular company gets much of its income for managing state Medicaid programs, with only a portion of its business coming from Obamacare exchanges.
But, just as the mob avenging Caesar’s assassination in Shakespeare’s “Julius Caesar” decides to rip apart a poor poet just because he shares the same name as one of the conspirators, so, too, are shorts, HFCs and panicked investors tarring any stock with “healthcare insurance” in its job description with panic sell orders.
Worse, perhaps tipped off early, Molina itself already had a large short position to begin with, and these wealthy clowns are not likely to let the stock up off the mat once the original bloodletting is done.
It’s a real problem. Molina’s numbers continue to look good. But when the gang that has all the money starts gutting the stock, sometimes it’s best just to exit and take the loss rather than hang around and let things get worse.
Molina will almost certainly bounce back, at least somewhat. And there’s no guarantee that anybody will exit the Obamacare universe, given that they conspired to set it up in the first place. UNH probably unloaded its threat today in hopes of gaining more leverage for negotiating price increases (big ones) for 2017 coverage.
But right now, the bloodbath in healthcare stocks continues, even though the rest of the market is modestly up. So it goes in the average portfolio. This is why you diversify. You always invest (or should) after carefully researching each position.
Usually this works. It’s worked less well in the capricious trading action of 2015. And, occasionally, you get cold-cocked on an individual stock like Molina when you least expect it. Diversification doesn’t staunch a loss like this. But it at least keeps the balance of your portfolio clear of headline-driven selloffs.
**NOTE: Investors with this firm aren’t REQUIRED to hold an IPO for 31 days. But if they don’t, and if they sell early, the firm disqualifies them from getting back into IPOs there for 90 days. Read our additional piece on this here.
*NOTE: Cartoon by Branco, reprinted by arrangement with and permission from LegalInsurrection.