Don’t expect a snap-back rally in the stocks even though M4A has ‘no chance’ of passing, says JPMorgan analyst
By Tomi Kilgore for Market Watch
The sharp selloff in managed-care stocks continued Monday, in the aftermath of the “Medicare-for-All” bill introduced last week, with UnitedHealth Group Inc. shares leading the Dow Jones Industrial Average’s losers for a third time in four sessions.
The bill proposes a simplified health-care system by moving to a single-payer model, with the transition from the current multi-payer system taking just two years. Although analysts suggest the legislation has little chance of progressing, investors remained unnerved as Congress continues to feel pressure to take action on cutting health-care costs.
“In our view, the bill has no chance of passing the [Republican]-controlled Senate and probably little chance even in the [Democrat]-controlled House given Speaker Pelosi’s apparent ambivalence,” JPMorgan analyst Gary Taylor wrote in a recent note to clients.
Still, Taylor said he did not envision a quick snap-back rally, as the Medicare-for-All (M4A) debate could weight on the sector “as generalist investors become wary of investing in the sector.”
UnitedHealth’s stock UNH, -0.98% dropped 4.1% to close at a 10-week low. Although the stock bounced 1.6% on Friday, it had still tumbled 10.3% over the past four sessions, including a 3.1% drop on Thursday and a 4.9% fall last Wednesday.
The stock’s price decline of $26.96 since Rep. Pramila Jayapal, a Washington Democrat, introduced the “Medicare for All Act of 2019” to Congress on Wednesday, has shaved about 183 points off the Dow’s price DJIA, -0.52% representing about three-quarters of the Dow’s 238-point decline over the same time.
Among others that have taken a beating since the bill was introduce, shares of WellCare Health Plans Inc. sank 6.1% to pace the health-care sector’s XLV, -1.46% decliners on Monday, and have shed 10.8% the past four sessions.
Elsewhere, shares of Cigna Corp. CI, -3.06% have fallen 8.8% the past four days, Humana Inc HUM, -1.85% has lost 8.2%, Anthem Inc. ANTM, -1.42% has declined 7.8%, Molina Healthcare Inc. MOH, -3.45% shed 9.0% and Centene Corp. CNC, -2.07% has slid 8.2%.
JPMorgan’s Taylor said while there could be a summer bounce in the stocks, he believed any rally would likely fade as the Democratic Presidential debates begin in the fall.
“We don’t see the larger overhang lifting unless President Trump is re-elected,” Taylor wrote. “We believe the entire sector would trade materially lower on a 2020 Democratic Presidential victory.”
Meanwhile, SVB Leerink analyst Ana Gupte said the market reaction was “overblown,” and saw the weakness in the stocks as a “buying opportunity,” as she expects fiscal, legislative and political hurdles to the bill. Still, she said this could eventually drive “a voluntary buy up to Medicare for Americans aged 50-64 with private Medicare Advantage as an option.”