When the polls suggested Hillary Clinton would take the election, pharmaceutical stocks felt the pressure, and Cardinal Health Inc (NYSE:CAH) was no exception. Near the beginning of November, the stock fell to a 52-week low following a weak third-quarter report from partner CVS Health Corp (NYSE:CVS). Despite a slight rebound, shares are still fairly cheap.
However, while I see long-term potential in the name, the short-term outlook is not signaling a strong buying opportunity just yet.
Politics and CAH Stock
CAH’s post-earnings rally was cut short by media reports that the Justice Department’s investigation into generic drug pricing could lead to indictments by the end of the year.
While Cardinal Health is not a part of any of these criminal investigations, the inquiry continues to set a negative tone in the entire industry.
More specifically, the increased government scrutiny will likely keep generic pricing depressed, which played a major role in fiscal-first-quarter earnings declining 10% year-over-year.
Still, when the DOJ warned of criminal charges, CAH stock only shed 7%, while stocks like Allergan Plc (NYSE:AGN) and Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) went over a steeper cliff. CAH has since regained all that lost ground and more while the generic manufacturers keep plunging.
After the move, CAH stock looks a lot closer to the near-term ceiling. Companies like Amgen, Inc. (NASDAQ:AMGN) and Mylan NV (NASDAQ:MYL) are still 20%-30% below their 52-week highs as well as Wall Street consensus, whereas CAH only has 10%-15% before it hits analyst targets.
So while it’s still a great stock and a company poised to rack up a lot of profit in a less tightly regulated world, it’s not the first healthcare stock I’d pick in today’s environment.
In fact, I wouldn’t be surprised to see another short-term pullback before CAH stock resumes its eventual upward trend.
In the meantime, beyond the hospital stocks that still need to digest how much of the Obamacare platform will remain intact, other similar healthcare and pharma companies could be more interesting plays with the evaporation of anxiety about Clinton.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
