The Dow Can't Hold New Highs as Merck, UnitedHealth Fall

Thursday didn't see a second record close for the Dow Jones Industrials, and health-care-related stocks were a prime culprit.

May 8, 2014 at 9:05PM
Longview

On Thursday, the Dow Jones Industrials (DJINDICES:^DJI) rose 32 points, falling just short of setting another new high. Still, the Dow managed to do much better than the rest of the stock market, as both the S&P 500 and the Nasdaq lost ground on the day. A large set of earnings reports last night and this morning added volatility on several fronts, as a mixed earnings season begins to draw to a close. Within the Dow, though, Merck (NYSE:MRK) and UnitedHealth Group (NYSE:UNH) were the biggest decliners on the day.

Www
Source: Army Medicine, Flickr.

In part, today's drop for Merck and UnitedHealth Group might simply have come from general investor disdain for health-care-related stocks. Falling biotech stocks were partially responsible for the decline in the Nasdaq, and many health-care stocks have seen massive runs during the past year as speculation rises about takeover battles and the need for larger players in the space to buy out smaller counterparts in order to add to their development pipelines. Indeed, M&A activity has risen to the highest levels of the industry, with deal proposals that, in at least one case, could well end up far above the $100 billion level.

Blood Sample

Source: U.S. Navy, Wikimedia Commons.

Some of Merck's 1.8% decline today came from an analyst downgrade, with investors growing worried about the extent to which the drug company had seen share-price gains earlier in 2014. Merck has been held back during the past several years by its patent-cliff issues, but more recently, shareholders have wanted to move past those issues and focus more on Merck's growth opportunities. Nevertheless, Merck still has to deal with ever-present competitive forces that could jeopardize even its Januvia and Janumet complex of drugs. Moreover, as the need for mergers increases, Merck could well end up having to overpay just to keep even with its main rivals, and that could end up eating into a big part of the $14 billion payday Merck just got from selling off its consumer-products unit.

UnitedHealth Group's 1.3% drop, however, merely represented a pullback from yesterday's more extensive gains after one of its main rivals issued a favorable earnings report. On the whole, the implementation of the Affordable Care Act has met many of the expectations that UnitedHealth and other health-insurance companies had for the legislation, with a significant number of new enrollees and at least the potential for greater growth as a result. It'll take time to see whether the restrictions that Obamacare puts on UnitedHealth and its peers will outweigh that opportunity, but at the very least, investors appear to have missed what could have been cataclysmic drops in sales and profits as a result of the health-care law.

With the Dow just below record levels, it's anyone's guess whether it will set a new record tomorrow, next week -- or years from now. Focusing on the weaker members of the Dow Jones Industrials should give you a sense of how likely the average is to overcome their negative influence.

Invest in the next wave of health care innovation
The Economist compares this disruptive invention to the steam engine and the printing press. Business Insider says it's "the next trillion dollar industry." And the technology behind is poised to set off one of the most remarkable health care revolutions in decades. The Motley Fool's exclusive research presentation dives into this technology's true potential, and its ability to make life-changing medical solutions never thought possible. To learn how you can invest in this unbelievable new technology, click here now to see our free report.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends UnitedHealth Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers