Triple-S: How to Get Triple Hosed in Health Care

Shares in Puerto Rico-based managed care provider Triple-S Management Corp. took a beating on the New York Stock Exchange in early trading today, illustrating the increasingly squirrelly nature of health care investing.

The company was the day’s third biggest NYSE percent loser.

Only about a month ago, a Forbes column trumpeted Citigroup research arguing that Triple-S stock would move from $20 to $25. The stock looked cheap from a price-to-earnings ratio perspective, and it seemed likely to dodge health care reform issues that have some investors fleeing the sector.

Forbes quotes the Citigroup analyst:

Triple-S is largely immune to the near-term troubles of reform: We estimate the commercial medical loss ratio at Triple-S will approximate 89% this year, so minimum medical loss ratios are really of no consequence.

More recently, SmarTrend found the company among other health care stocks where substantial short positions set the stage for short squeezes that could drive up prices.

A few days before that, SmarTrend noted unusual trading in Triple-S calls. “Usually high call volume is an indicator that many investors are looking for higher prices in the near future,” the Aug. 9 article said. “SmarTrend is bullish on shares of Triple-S Management and our subscribers were alerted to buy on March 03, 2010 at $17.73. The stock has risen 17% since the alert was issued.”

On Tuesday, the stock fell about 15%, losing almost $3 and lapsing into the $16.25 range.

What happened? Triple-S had to adjust its 2010 guidance because of a development in Puerto Rico, where the government excluded a Triple-S subsidiary from a Medicaid market. The reasons for the exclusion were not immediately divulged, but the consequences were harsh for anyone holding the stock long.

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