Wellpoint trades at less than seven times next years expected earnings. HMOs generally trade at 13 times earnings which would imply a target price of $110. I assumed that the reason Wellpoint was so cheap was because of the uncertainty surrounding Obamacare. While I knew that a bad Supreme Court decision would hit the stock I thought the damage would be minimal as a bad outcome seemed like it was already priced in. I was wrong as the stock is down 10% since the decision.
The market has been absolutely brutal to any stocks with "issues". No price seems to be too low for a stock with uncertainty. I wrote a post a few weeks back about how recently valuations did not offer much support to stocks. I pointed to the sheer number of value traps in recent years. In addition many market participants operate with "risk management" which equates to a stop loss, so losses beget losses.
Even though I am a value investor I have managed to avoid the value traps in recent years, other than a short foray into Hewlett Packard last year. In the past few months I have not been able to escape the side effects of the brutal bear market for value stocks. It has been a grueling experience and one I will not soon forget. It has reinforced the idea that one must account for all possibilities and make sure the portfolio can withstand it.