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Cabot Undervalued Stocks Advisor Special Bulletin

Molina Healthcare (MOH) reported huge fourth-quarter and full-year earnings misses yesterday after the markets closed, bearing no resemblance to analysts’ consensus earnings estimates.

Molina Healthcare (MOH) reported fourth-quarter and full-year results yesterday after the markets closed. The company had a huge earnings miss, with EPS bearing no resemblance to analysts’ consensus earnings estimates. The portion of Molina’s health insurance business that is devoted to the Affordable Care Act (ACA) suffered greatly from a variety of costly problems, including extremely high risk transfer payments and non-payment of $90,000,000 owed to Molina by the U.S. government. Molina’s non-ACA business actually performed quite well, and enrollment growth exceeded expectations.

My immediate assessment of bad corporate news begins with this question: “Is this problem temporary, or will it impact future quarters at the company?”

Unfortunately, the ACA problem is growing, with more and more insurers leaving the marketplace. More worrisome is the fact that neither Molina’s management nor Wall Street analysts were terribly honest about the prospects for the poor earnings report. Somebody within the communication chain of command was encouraged to hide the truth.

I apologize to investors who recently bought MOH on my recommendation. We were all blindsided. Based on my experience with bad news that surprises Wall Street, the stock is unlikely to rebound quickly.

At this point, I believe that the best opportunity to keep your invested dollars growing is to sell MOH, and reinvest in an undervalued growth stock with a bullish chart. Sell.