Moats React Strongly in November

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Part 3
Moats React Strongly in November PART 3 OF 4

Why Healthcare and Trade Stocks Tempered Moat Index Upside


On the flip side, several companies reacted negatively to the election results, particularly those that may be impacted by healthcare reform and international trade. Healthcare IT firm Cerner Corp (CERN US, -15.02%) and global-trade dependent Visa Inc. (V US, -6.10%) were among the Index’s leading detractors.

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Healthcare stocks underperformed

Healthcare stocks underperformed the benchmark in November as Trump reiterated his plan to lower medicine costs. Trump aims to control drug prices (PPH) through boosting free-market competition and has also supported allowing consumers to re-import drugs from abroad. Trump also favors allowing Medicare to negotiate lower prices for prescription drugs with pharmaceutical companies (BBH).

Why Healthcare and Trade Stocks Tempered Moat Index Upside

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Currently, Veterans Affairs negotiates with drug companies, while Medicare is not allowed to. Medicare is the federal government program that provides health insurance to a certain section of the population, like people above 65 years of age and people suffering from disabilities and renal disease. Allowing Medicare to negotiate prices for prescription drugs is likely to affect pharmaceutical companies’ top lines.

Year-to-date, moat (MOAT) index constituent Biogen (BIIB) is down 6.5% while Express Scripts Holdings (ESRX) is down 20%.

Trump’s anti-trade rhetoric

Donald Trump promises to boost US jobs and revive manufacturing by restricting trade deficits with Mexico, China, and other countries. However, higher tariffs on imports could increase the cost of goods and services in the domestic market. That change would affect the earnings of US companies that rely on imported raw materials.

On the other hand, US exporters and corporations with a substantial presence outside the country are likely to face retaliatory trade measures from other countries, affecting their businesses. According to the Commerce Department data, the foreign subsidiaries of US corporations earned $4.1 trillion in 2014. Moreover, for many companies like McDonald’s (MCD) and 3M (MMM), foreign operations constitute the majority of their business.


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