With a market cap of $72B and 2020 sales of $122B, Anthem Inc. is one of the largest life, hospital and medical insurance providers in the U.S. The company went public in October 2001 and is one of not too many firms never to trade below its IPO price.
Nearly twenty years ago, the stock opened at $20.25. Last month, it reached an all-time high of $341 a share. Not counting the dividends, holding Anthem for 20 years would have resulted in a total gain of 1584% or 15.2% compounded annually. That is a market-beating result considering the S&P 500’s 6.9% annual return over the same period.
It wasn’t a smooth ride, though. The 2008-9 Financial crisis saw ANTM stock plunging by 69%. It took the price until late-2013 to reach its 2008 peak of $90. There was also a notable 34% correction in 2015-2016. And, of course, the coronavirus crash in 2020 dragged the stock down 46% from its 2019 high.
Anthem Stock Might Be in a Bear Market Already
So is Anthem a buy at its current price of $290 or should we wait for a bigger drop? From a fundamental standpoint, there is nothing to suggest a decline lies ahead. The company is sound, profitable and the stock is trading at a reasonable valuation. From an Elliott Wave perspective, however, there is something to worry about.
ANTM’s weekly chart reveals that its 20-year journey has formed a complete five-wave impulse. The pattern is labeled I-II-III-IV-V, where the five sub-waves of wave III are visible, as well. The Financial Crisis crash in 2009 stands for wave II, while last year’s COVID panic fits in the position of wave IV.
If this count is correct, the post-March 2020 recovery to a new record high must be the fifth and final wave of the pattern. According to the theory, every impulse is followed by a three-wave correction in the opposite direction. Corrections usually erase the entire fifth wave, which means a decline back to ~$170 a share can be expected.
Supporting the negative outlook is a strong bearish RSI divergence between waves III and V. All in all, Anthem seems like a risky bet to us near $290. The chart above suggests the 15% dip from $341 might evolve into a full-blown 50% bear market. Once and if this really happens, at a P/E ratio in the single digits Anthem would be a screaming buy once again. For now, we’ll watch from a safe distance.
Similar Elliott Wave setups occur in the Forex, crypto and commodity markets, as well. Our Elliott Wave Video Course can teach you how to uncover them yourself!
