Painful 20% drop for Molina Healthcare (again). My stock buy of the week
July all over again. Did the market forget about Berkshire and August?
Hi all, hope you’re enjoying earnings season.
For quarterly reports, I’m of two minds:
good that companies offer a quick snapshot of how things are going
crazy how much markets can react to this snapshot
But when markets act crazy, there’s opportunity.
This season is no different.
Summary
Molina Healthcare (MOH) dropped 20% Thursday
Disappointing earnings, for sure
But the market knew things were grim
Defensive value story still intact
Just ask Berkshire
Read on.
What were you expecting?
I get it.
Molina had a bad Q3. Due to:
Higher costs
Lower earnings
Tighter cash
Darker outlook
These aren’t good. There’s cause for concern.
But what was the market expecting?
July crash
Because the market knew all this.
The healthcare sector has already plummeted.
UnitedHealth (UNH), Centene (CNC), Elevance (ELV), and Molina.
They all dropped like 40-60% or so this year.
Including a drastic sell-off in July.
On concern over….copy/paste from above…. :
Higher costs
Lower earnings
Tighter cash
Darker outlook
Ie - the exact same issues.
So, sure, Molina’s report on Thursday wasn’t pretty.
But a selloff - again?
Did everyone forget about August?
August snatch
Because that’s when we heard about Berkshire.
And how Buffett swooped in and snatched UNH after the big sell-off.
Eyeing long-term value and that 60% discount.
The news came out in mid-August.
Since then, the market sort of realized it had overreacted.
Molina rose nearly 30%.
July all over again
But now, has the market forgotten about August?
Because it’s July all over again.
On Thursday, Molina dropped back down to $155 or so.
Back down near its 52-week low.
Back to overreaction level?
Here’s a good chart showing earnings and the share price.
With my blue line showing earnings and red line showing the share.
The point:
Earnings down a bit
Share price down a lot
Any regression back up to the mean represents big upside
11% growth
In Molina’s Q3 report, costs and margin got a lot of attention.
There’s a perfect storm of rising costs. It’s going to take some time to weather it.
But my views from July remain intact.
Helped by something that didn’t get much attention on Thursday.
Something up top that tends to help a lot of things underneath it:
Continued revenue growth
At a better-than-expected 11%
Thanks for reading. Talk to you next week.
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Hi, I’m Joel Sherwood. I analyze stocks and invest each week. And write about it all here. Building an equity fund for the long term. And trying to get good at this investing thing.
I’m a former financial journalist and current bank employee. I live in Stockholm, Sweden and started the Sherwood Investment Letter in January 2025.
Purchases are not recommendations.
Great perspective on the market's tendency to overreact to earnings misses, especially when the underlying issues were already known. Your reference to Buffett's August move with UNH is particuarly relevant - it shows how defensive healthcare names can create value opportunities during these knee-jerk selloffs. The 11% revenue growth you mentioned tends to get overshadowed by margin pressure news, but it's a key indicator of underlying business strength. MOH's fundamentals remain solid despite the quarterly noise.