Health insurer and hospital chain stocks have continued to shed value since last week's federal court ruling striking down the Affordable Care Act.
They're likely getting swept up in the broader market downturn that struck in October. As of market close Friday, the S&P 500 Index had fallen more than 17% from its 2018 high in September.
But investors also likely view healthcare stocks as a riskier bet now that the ACA is under threat; those effects are compounded by the fact that investors tend to be especially risk-averse toward the end of the year.
"I think the ACA ruling introduces a new risk factor, so I see why people would be hesitant to step into that," said Brian Tanquilut, a healthcare equity analyst with Jefferies. "There is no need to buy stock, especially since most of these funds are evaluated at year-end. The last thing you want to do is put more capital at risk at year-end when the risk factor just went up."
For his part, Tanquilut doesn't think the Texas ruling actually changes anything, since it still has to work its way to the U.S. Supreme Court.
"The bar is set pretty high, it feels like, to get the ACA overturned as a whole," he said.
Ana Gupte, an equity analyst with Leerink Partners, agrees that hospital chains aren't as exposed as the market thinks they are, noting that HCA Healthcare has already begun to rebound. The Nashville-based company's share price is still down slightly from Monday's low—when healthcare company stocks plummeted in the wake of the late Friday ruling—but it's had a few modest increases since then.
In a market downturn, investors tend to steer clear of stocks that have a lot of leverage, such as Franklin, Tenn.-based Community Health Systems and Dallas-based Tenet Healthcare Corp., Gupte said.
Indeed, shares in CHS and Tenet have continued to shed value even since Monday's low. CHS rounded out the week at nearly 15% less than its price on Monday, a particularly rough day in which the company's share value plummeted by nearly 14%. Tenet rounded out the week at about 11% less than its Monday value, which was already down 7%.
Another hospital chain, King of Prussia, Pa.-based Universal Health Services, lost about 3% of its share value between Monday and Friday.
That said, Gupte said she thinks the ruling does expose insurers like Molina Healthcare and Centene and, to a lesser extent, WellCare Health Plans. Molina's shares were down nearly 8% at Friday's close from Monday, a day in which they lost nearly 9% of their value. Centene's shares were down more than 7% at Friday's close from Monday's low. WellCare, meanwhile, is down 4.5% from Monday.
Going into 2019, Tanquilut said he thinks hospitals could struggle with utilization growth, especially given the country's low population growth rate, and what's so far been a mild flu season.
"The question becomes: Can we see utilization growth in 2019 building upon what we saw in '18?" he said. "It's a big question mark."
