Skilled Nursing Stocks Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of nursing homes were punished on Monday after the Centers for Medicare & Medicaid Services announced plans to cut 2012 payments for skilled nursing facilities by 11.1%, or $3.87 billion.

So what: The reduction is expected to take a big chunk out of nursing companies' earnings and, in turn, significantly stress debt covenants. It's no surprise, then, that the more highly levered companies in the space like Sun Healthcare (NAS: SUNH) , Ensign (NAS: ENSG) , and Kindred Healthcare (NYS: KND) are getting beaten down the hardest.

Now what: Expect more short-term pain in the space. The contagion is spreading to all parts of the hospital sector, with even real estate trusts like Sabra Healthcare (NAS: SBRA) and Health Care REIT (NYS: HCN) also down double-digits today. Of course, if you're willing to sift through the carnage and stay patient, I'm guessing that there are more than a few long-term bargain opportunities waiting to be found.

At the time thisarticle was published Fool contributorBrian Pacamparaowns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool'sdisclosure policyalways gets a perfect score.

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