In today’s episode of PreMarket Prep, Dennis “DDD” Dick discussed a seismic shift in his healthcare stock positions, marking a departure from his long position on UnitedHealth Group (NYSE: UNH) to shorting all he could in healthcare. DDD’s experience offers a valuable lesson in agility and a keen understanding of market dynamics as he pivoted from an adverse situation to a profitable one.
UnitedHealth Group’s shares fell in after-hours trading yesterday, following the CEO’s comments about an increase in non-urgent surgeries during an analyst conference. This increased volume of non-urgent surgeries, many of which are covered by Medicare, suggested that companies like UNH may need to pay out more due to the higher demand for these procedures. This news, when it broke, caused a significant drop in UNH’s shares.
DDD, initially long on UNH, noticed the falling trend, along with large offers in the after-hours session, and quickly sold most of his UNH shares. He realized that this news could be more extensive, potentially affecting the entire Medicare segment. As such, he speculated that other healthcare companies could also be adversely affected by this shift in non-urgent surgeries, and shorted stocks like CI and ETFs like XLV as a hedging strategy. In particular, he noticed a significant offer in Humana (NYSE: HUM), indicating potential downward pressure for the stock. The follow-through today confirmed DDD’s call.
Finally, DDD identified a potential opportunity in hospital stocks, which might benefit from the surge in non-urgent surgeries. He noted stocks like HCA, THC, and other hospital stocks that could see a positive impact from this shift.
Takeaways
DDD’s observation about Humana and other healthcare stocks falling is a classic example of understanding market relationships. It underscored the importance of being able to decipher the implications of news and developments in one stock or sector and how it could impact others. Recognizing the potential correlation between the increase in non-urgent surgeries (leading to increased Medicare costs) and the downward pressure on healthcare stocks allowed DDD to react quickly and flip his overall position to take advantage of the move.
This segment highlights the importance of agility in trading, the ability to understand and interpret market relationships, and the value of human intuition in trading. While DDD’s initial long position on UNH turned out to be a misstep, his quick thinking and understanding of market dynamics allowed him to pivot his strategy and potentially turn a wrong into a right.
