Health Care Stocks Continue to Get Pounded in 2019
2019 has started out pretty bullish for the overall stock market, but with many health care stocks, it’s been a year to forget so far. Things don’t look like they are changing.
United Health Care serves as a good example of how health care stocks are starting to really get swatted by the bears out there. United actually had been doing pretty well over the last 2 years, moving from $137.83 in November 2016 to $281.36 to close out November 2018. That’s over a 100% return in 2 years.
Last December, the wheels came off of this cart though, and in spite of some back and forth trends this year, it now sits at a little over $219 a share and falling fast. That’s a 22% loss so far over this short period.
The worst may be yet to come though given this stock’s current slide, and it’s one that should attract the concern of even the most stalwart investors. This stock has lost almost $50 a share in a little over a week, as the talk about Medicare for all is picking up again.
If Medicare for all ever came into being, managed health care companies such as United Health Care would simply be toast. Even though the threat of this is near zero, it isn’t quite zero, but investors are pretty finicky when it comes to these things and many are finding this a good enough reason to run for the exits.
United Health Care looks like it might be flirting with its 2018 low soon, which is only $7 away now. There’s a lot more room down towards where it started at the beginning of 2016 when its current upward move all started, about $100 in fact, or half its present value, but a lot more damage can be done before we even come close to this level.
If we are playing this on the short side, this could be seen as pretty exciting, and we need to realize that bear moves like this or bearish expectations can be quite profitable indeed if we are on the right side of things. Few investors dabble in this though and they paint themselves into a real corner when these things happen, where they get to choose between continuing to bear the losses or cut them short.
Stocks that go down when the overall market is going up are often good candidates for shorts, especially when the real down days are accompanied by large spikes in volume, as has been the case lately with United Health Care. This indicates the tendency toward bigger outflows, and the money is sure flowing out of United Health Care stock these days, especially on Tuesday. This has been the case with several other recent down days as well, and this is not a good thing to be happening if you are rooting for the bulls, because they are getting crushed.
Pharmaceuticals Are Also Bearing the Weight of Possible Bad News
Other health care stocks, particularly pharmaceutical companies, have had to worry about the movement toward capping drug prices, and this an issue that even President Trump is on board with, meaning that the threat here is very real, as compared to the fantasies of Bernie Sanders and his cohorts.
Merck had been holding up pretty well until a couple of weeks ago, where it started the year at $76.41 and made it as high as $83.30 on April 1. Things have been dropping since though and it’s now below $75 and down for the year overall now. Pfizer has spent the whole year underwater so far, and is only off by 9% so far, but has given most of this back over the last 10 days and looks primed for more.
The overall health care sector has held up reasonably well given all this, and is trading around the same level as it started the year. The trend more recently has been downward though, and we may and probably will see this continue for a while at least.
The sell-off is also spreading out more this month, sending medical service company DaVita underground for the first time this year, after losing more than 7% on Tuesday. Tuesday was not a good day at all for the health care sector, as the top 10 losers of the day were all in this group.
This Recent Dip is Hurting Even the Best Health Care Stocks
Even hot health care stocks have not been spared from this. Alexion Pharmaceuticals, which was recently up more than 50% on the year, gave back over 8% on Tuesday as the sentiment toward this sector further deteriorated.
A lot of this does come down to how much of a threat Medicare for all represents, and although it would be the death of a lot of these companies, we don’t want to lose perspective on just how unlikely this is. In spite of how enthusiastic Sen. Sanders and others may be about this, their dreams are actually a very long way from what would be feasible and acceptable.
One of the considerations here would be our having to gut entire industries, both the health insurance and the managed care industries, and this goes beyond just putting a massive amount of people out of work, it would remove a significant portion of our stock market capitalization.
Investors may be looking to get a head start on this, selling first and asking questions later, but the weight of this pulls all investors down by the undertow that this creates. Perhaps things will come back once cooler heads prevail, but we may still want to escape the losses that incur while we wait.
This is not a particularly good time to be in many health care stocks, although each stock does need to be decided on its own merits as always. The wave is a pretty big one right now and is washing up a lot of health care stocks indeed in its wake. This might not be a wave we want to surf, unless you are running with the bears, where you actively seek collapses, and the bigger, the better.
This one appears to be the real deal for now though but we’ll have to see just how much fear there is out there and where things eventually settle in, which may not happen for awhile.
Editor, MarketReview.com
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