Sure, the managed care stocks are no picnic here. They have been disastrous, especially versus pretty much every single sector of this year's very buoyant stock market.
But does it make sense to keep selling them?
Is it possible that the stocks have bottomed already, especially with the Democrats -- the proximate cause of their underperformance because of a predilection for single payor health care -- having a 20-candidate slate right now with no clear front-runner?
As much as I would like to think that the stocks have bottomed, history could claim otherwise. I want to give you the historic worst-case gauntlet, so you can at least figure out the downside, which is considerable, but also put it in the context of how inconceivable that downside scenario can be given the current climate, allowing for a more-constructive view.
Let's deal with the current worst case now, using UnitedHealth Group (UNH) as the best example of what's been occurring.
We know many of the Democratic candidates have been making a ton of noise about Medicare for All, which would be a single payor system that would, if enacted, conceivably destroy the bountiful profits of United Health.
Let's look at the timeline. The single payor campaign rhetoric burst forth in December 2018, when candidates began announcing. UnitedHealth's stock seemed safely ensconced in the $270s. When a considerable number of Democrats started talking about Medicare for All at the end of December -- and the stock market broke down because of Jay Powell's imprudent tightening stance -- UNH gapped down to $231. Like the rest of the market, it began to lift in January and returned to $270 in February. But it's been pretty terrible since then.
How bad? The stock was dealt a one-two punch when Bernie Sanders, the putative front runner, revealed his aggressive Medicare for All platform on April 10, 2019, with the stock at $246 and April 17, when it tumbled to its bottom at $208 the day after UnitedHealth reported.
What drove the second leg down? Impassioned, defensive comments of the current system by David Wichmann, the CEO of UnitedHealth, on the conference call. It's worth spending a moment on his words, because the stock was flying high off the beat and raise until they were uttered.
"The wholesale disruption of American healthcare being discussed in some of these proposals would surely jeopardize the relationship people have with their doctors, destabilizing the nation's health system and limit the ability of clinicians to practice medicine at their best," he stated. "And the inherent cost burden would surely have a severe impact on the economy and jobs, all without fundamentally increasing access to care."
The stock, which had been hanging in until those words were uttered, just plummeted on the riposte, and went down further when he pressed the case: "The path forward is to achieve universal coverage -- and it can be substantially reached through existing public and private platforms. Meaningful progress in health care lies in national and state leaders continuing to work collaboratively with the innovative and proven private sector solutions."
Wichmann went on to say that the status quo is keeping costs down while also offering the access, choice, and coverage protections people seek.
So, there you have it: Medicare for All versus a system that has allowed the stocks of UnitedHealth as well as Anthem (ANTM) , Humana (HUM) , and the now-acquired Cigna and Aetna, to thrive ever since Obamacare went into law.
Now, unfortunately for UnitedHealth and its cohorts, the vast majority of Democratic candidates favor a more universal health care for all model, while a minority favor what can be called universal health insurance for all, a nuanced view that's the difference between no bottom yet versus a potential bottoming scenario.
What do portfolio managers really fear, though? I think they are concerned about a Democratic candidate winning the White House and Democrats taking both the House and the Senate. Yes, the dreaded Obamacare juggernaut that cut the stocks of every single major managed care company in half between the time that Obama became a front runner to when he was elected.
It's important to point out that Obama's landslide victory at the polls and the change in leadership in Congress created the bottom in the health care stocks, NOT the introduction of the affordable care bill itself or its passage, as every one of these stocks had rallied considerably, including an almost double for UnitedHealth, long before the legislation became law.
The whole period from July of 2009 -- the introduction of the Affordable Care Act -- through its passage in the House and Senate was a benign one, with gently rising prices, which we now see served as the launching pad for a move that's staggering in bounty.
What are the lessons here? I think that Wichmann's recognition of the fact that the Democratic candidates' rhetoric in favor of single payor scared the wits out of portfolio managers and caused Wall Street to realize how possible and perilous the single payor threat may be.
UnitedHealth's stock has fallen from $287 to $208, peak to trough. If this were 2008-2009, though, you could expect UNH to drop another 60 points from that trough, or 90 from here, the ultimate downside scenario. Why just that low?
Because I think the presumptions here are entirely different from then. First, there is no assurance that any Democrat can take on President Trump, who seems more in the health-insurance-for-all camp than the healthcare-for-all category.
Second, neither the Senate Republicans nor both the Democratic leadership in the House and Senate has any desire to change things. Third, even if the Democratic candidates make hay with single payor, that doesn't mean they can enact it by themselves if they win.
So, what's the play? I say be prepared to see those $200-level lows again, but a breach much below those lows? You would need a virtual Congressional revolution at the ballot box. I don't see it. I think history says you buy those lows, minus, say, 10%, if you get them again and hold on for a return to status quo and the halcyon days returning.
