Health Stocks Rebound After Reform Fears
For weeks, Terry Hartshorn, chief executive of PacifiCare Health Systems Inc., watched his company’s share price sink like a rock as investors, skittish about President Clinton’s plans for reform, fled health care stocks in droves.
Even a quarterly report showing a 62% increase in company profit failed to give PacifiCare a lift on Wall Street. But the stock surged more than 25% Wednesday after Hartshorn announced that the Cypress-based health maintenance organization would buy back about 500,000 shares of its class B common stock.
“We feel that, with the recent significant decline in the value of PacifiCare Health Systems’ stock, there may be attractive opportunities available to us to acquire shares,” Hartshorn said in a prepared statement.
Indeed, health care stocks, including those of several Southern California companies, had reached such lows Wednesday that bargain hunters came out in force, pushing health care stocks up across the board.
“These stocks got to the level that, whatever the Clinton Administration is going to do, they are screaming, “Buy me!’ ” said Todd B. Richter, an analyst at Dean Witter Reynolds Inc. in New York.
On the NASDAQ exchange, PacifiCare rose $5.75 to $28.25. On the New York Stock Exchange, pharmaceuticals company Merck rose 75 cents a share to close at $38.675. Bristol-Myers Squibb Co. gained 75 cents to close at $57.675, and Johnson & Johnson added $2.125 a share to close at $57.375.
In other NASDAQ trading, Costa Mesa-based Abbey Healthcare, one of the nation’s largest home health care agencies whose stock had been languishing despite strong earnings, closed up $1.50 a share at $20. FHP Inc. in Fountain Valley gained $1.375 a share to close at $20.675; Homedco Group Inc. in Fountain Valley rose $1.50 to $31.125, and Tokos Medical Corp. in Santa Ana increased $1.25 to $10.50.
Some analysts said the across-the-board rise in health care stocks is likely to continue for at least several days, if not weeks, as the companies regain some of the value they have lost since Clinton’s Feb. 17 State of the Union address. Shaken by calls for reforms in the health care system, investors’ sell-off of health care stocks drove some down by as much as 50%.
“There’s just been this total lack of confidence on the part of the investor about what or how (the Clinton Administration) will reform health care,” said John Hindelong, an analyst at brokerage Donaldson, Lufkin & Jenrette in New York. “With that as background, many investors threw up their hands and said, ‘I don’t want to play.’ ”
“The Administration’s strategy can best be summed up, in my opinion, to: ‘Aim, ready, fire,’ ” added Hindelong. “They want to do something--anything--and then worry about the impact later.”
Not all experts are sure that Wednesday’s rally in health care stocks will be sustained.
David Saks, an analysts at Gruntal & Co. in New York, said the surprising gain was a welcome respite from what he expects to be further selloffs in health care stocks until the Clinton Administration begins to give details of what reforms it has in mind.
“I don’t think this is over,” Saks said of the selloff. “This run-up is very pleasant. . . . But the issues in the minds of many have not been resolved overnight.”
The recent skittishness of investors about health care stocks came despite the view of many health care company executives that it is too early to pick the winners and losers under health care reform. Smart investors, they say, will hang on to stocks, especially in the managed care area, rather than sell them at the first sign of trouble.
There are some companies, however, that will inevitably be hit harder than others under any proposal that comes out of Washington. Pharmaceutical companies and hospital networks, for instance, will probably be affected by rate setting and price caps.
But David Olson, a spokesman for National Medical Enterprises in Santa Monica, said that even worries in those areas are premature. The hospital industry, he said, will most likely resist any changes that would include such components.
“In a general way, NME and all hospitals are going to be resistant to rate setting,” said Olson, whose company operates 131 hospitals across the nation. “States like Florida have been doing it for years, and it doesn’t do what they think it’s going to do.”
ANOTHER BIOTECH SETBACK: Industry leader Amgen Inc. forecast lower than expected first-quarter earnings. D2
A Rebound for Medical Stocks
How some major Southland health care stocks rebounded Tuesday and Wednesday, after plunging between Feb. 16 and Monday.
52-week Change in stock price: Stock (market) high 2/16 to Mon. Tues./Wed. Abbey Healthcare (O) 24 3/4 -5 1/8 +2 7/8 Amgen Inc. (O) 78 -12 3/8 +4 3/4 FHP International (O) 29 -4 5/8 + 5/8 Grancare Inc. (O) 24 -6 5/8 + 3/8 Homedco Group (O) 37 -8 5/8 +4 3/4 PacifiCare A (O) 57 1/2 -21 3/4 +8 3/4 Salick Health (O) 16 1/4 -2 3/4 +1 Sunrise Medical (N) 31 3/4 -5 +1 3/8 Tokos Medical (O) 38 1/4 -4 1/2 +1 Wellpoint Health (N) 39 3/4 -8 7/8 +3 7/8
Wed. Stock (market) close Abbey Healthcare (O) 20 Amgen Inc. (O) 46 1/4 FHP International (O) 20 7/8 Grancare Inc. (O) 15 3/4 Homedco Group (O) 31 1/8 PacifiCare A (O) 34 3/4 Salick Health (O) 11 3/4 Sunrise Medical (N) 24 1/8 Tokos Medical (O) 10 1/2 Wellpoint Health (N) 28 1/4
N: NYSE; O: NASDAQ
