Amazon.com (AMZN), Berkshire Hathaway (BRKA) and JPMorgan Chase (JPM) announced a joint healthcare venture which would provide technological solutions via a company which would be “independent and free from profit making incentives and constraints” to provide their 1.2 million employees with “simplified, high-quality and transparent healthcare at a reasonable cost.” According to Jeff Bezos, Warren Buffett and Jamie Dimon they are looking to “create solutions that benefit our U.S. employees, their families, and potentially, all Americans.”
The immediate market response was a negative price move for all twelve companies in the Managed Healthcare Sector. By the end of the day’s trading, the stocks were down just over 3.25% on average. The iShares Dow Jones Healthcare Provider ETF (IHF) which was up almost 10% in 2018 after hitting its historical high on Monday, was down over 2.3% yesterday.
| Systems Software Sector
(in $ millions) |
Tkr | Short
Interest |
1 Month
Change |
YTD MTM
P/L |
Day
Price Move |
Day
MTM P/L |
| UnitedHealthcare Group | UNH | $1,835 | +$558 | -$111.2 | -4.35% | +$79.8 |
| Anthem Inc | ANTM | $1,437 | +$270 | -$104.2 | -5.28% | +$75.9 |
| Humana Inc | HUM | $777 | +$110 | -$104.5 | -3.07% | +$23.9 |
| Cigna Corp | CI | $738 | +$123 | -$14.3 | -7.15% | +$52.7 |
| Centene Corp | CNC | $700 | +$239 | -$41.1 | -2.32% | +$16.2 |
| Molina Healthcare | MOH | $670 | +$152 | -$98.3 | -0.83% | +$5.6 |
| Aetna Inc | AET | $643 | +$209 | -$23.0 | -3.02% | +$19.4 |
| Healthequity Inc | HQY | $273 | +$7 | -$23.9 | -1.41% | +$3.8 |
| Wellcare Health Plan | WCG | $261 | +$76 | -$9.7 | -3.25% | +$8.5 |
| Trupanion Inc | TRUP | $153 | +$30 | -$24.7 | -4.33% | +$6.6 |
| Megellan Health Svcs | MGLN | $26 | -$5 | -$1.0 | -1.62% | +$0.4 |
| Triple-S Mgt Corp | GTS | $26 | +$0 | +$1.8 | -2.72% | +$0.7 |
| Total Sector | $7,539 | +$1,770 | -$552.9 | -3.28% | +$293.6 |
While the announcement is a harbinger of market disruption in the managed healthcare sector, the immediate pessimistic move in stock prices may be a bit premature. While the collective intellectual, economic and technical assets of this newly formed alliance is formidable, it may be years until any viable solutions come to fruition. We have not seen a large influx of short selling in the sector to go along with yesterday’s price weakness, which means that this stock price move was driven primarily by long shareholders selling off some of their positions upon hearing the news and not short sellers driving down the stock prices.
In addition to shorts not being primarily responsible for pushing the sector’s stock prices down, they may intensify any stock price rebound that may occur if the sector has a turnaround today. Shorts may buy back shares and realize their one-day profits if the managed healthcare sector rallies today.
With nervous long shareholders already having sold off their positions yesterday, and short sellers not racing to increase their exposure in the sector we may not have much negative stock price pressure in the sector today. In fact, long shareholders may see this as a buying opportunity and shorts may see this an opportunity to realize some profits which would result in a rebound rally.
Want deeper insight into the above analysis?
Contact: Ihor.Dusaniwsky@S3Partners.net
Managing Director Predictive Analytics, S3 Partners, LLC
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