By Kate Gibson
U.S. stock investors on Monday flocked to major insurers - with
the health-care sector the sole industry group not losing ground in
Monday's sharp decline - as the White House retreated from one
controversial aspect of its attempted overhaul of the nation's
health-care system.
"The stock market doesn't like that much government intrusion,
or such big change. That's why gridlock is preferable," said Peter
Bookvar, equity strategist at Miller Tabak.
While the broad market was slammed, shares of large health
insurers rallied as the Obama administration backed off its plan to
give Americans the option of signing up for a government-run
health-insurance option.
"Health care can outperform in a declining stock market, but
what's going on today is that investors have a growing belief that
a public plan will not be part of the final solution," said John
Sullivan, director of research at Leerink Swann, a health-care
investment bank.
"If a public plan is not part of the solution, that's good news
for managed care," he added.
Up 61% year to date, shares of Coventry Health Care Inc. (CVH)
on Monday rose 5%, while shares of Aetna Inc. (AET) also gained 5%.
UnitedHealth Group Inc. (UNH) and Cigna Corp. (CI) both advanced
about 4%.
The rise in insurer stocks came in the wake of Warren Buffett's
Berkshire Hathaway Inc. on Friday reporting it had purchased a
stake in medical-supplies firm Becton, Dickinson & Co. (BDX)
and upped its holdings in drugs and medical-products company
Johnson & Johnson (JNJ) in the second quarter. Berkshire
reported reduced holdings in insurance goliaths WellPoint Inc.
(WLP) and UnitedHealth.
On the Dow Jones Industrial Average (DJI), pharmaceutical giant
Pfizer Inc. was the best-performing stock, up nearly 1%.
After dropping nearly 200 points, the Dow industrials recovered
a bit to trade at 9,159.45, off 161.95, or 1.7%. The S&P 500
Index (SPX) fell 21.27 points, or 2.1%, to 982.82. The Nasdaq
Composite Index (RIXF) declined 48.87 points, or 2.5%, to
1,936.65.
Health-care 'minefield'
Regardless of what happens with health-care reform, investors
need to tread carefully. Miller Tabak's Bookvar called health-care
stocks a "minefield," given Medicare makes up so much of
health-care insurance.
"When the government is one of your biggest customers, whether
you're a product maker or a hospital, the economics are not free
market. When the government can change reimbursement at the snap of
a finger, it's not the same as a food company," said Bookvar,
referring to consumer staples, another sector viewed as
defensive.
The Food and Drug Administration "can strike down a biotech drug
on any particular day," said Bookvar in offering another example of
the government's current role in the health-care sector.