UnitedHealth Group, Inc. (NYSE:UNH)

CAPS Rating: 4 out of 5

A health insurance giant, UnitedHealth Group serves more than 75 million people worldwide.

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Player Avatar TheDumbMoney (44.25) Submitted: 9/1/2010 2:45:46 PM : Outperform Start Price: $30.64 UNH Score: +93.53

Purchased today in my IRA at around $32.48/share, prior scheduled purchse.

Valuation: My analysis shows this stock is undervalued. P/E is 8.5ish. Dividend growth in the last five years has been very good. Debt is well under control. P/S is around 0.4, which is less than half the five year average (though in line with the undustry right now). PEG ratio is 0.9. Earnings yield is over 11! Currently at 10-year lows in P/B, P/S, P/CF, P/E. Future expectations are too low, for the reasons discussed below.

The "Story": I continue to be heavily invested in healthcare, and will get more so. I think that as our U.S. population ages (and, internationally, a lot of world population ages), healthcare costs will, rightly or wrongly, continue to increase. This stock is still undervalued because of low, low expectations brought about by healthcare reform, but it is going to do OK anyway, if not way more than OK. We as a society continue to "medicalize" societal costs. Rather than incentivizing people to stop bad behavior, such as over-eating, leading stressful lives, smoking (some incentives here to stop), drinking, eating unhealthily generally (beyond over-eating), we rely more and more on medicine, ex post, to fix such evils. This is a huge problem for our society. The only way to benefit from it financially is to invest in the healthcare industry. Now, while people are unreasonably (in my humble view) pessimistic, is a great time to do so. In my view, virtually all aspects of the health industry are likely to be some of the best performers over the next twenty years. Demographics strongly favor it. Demographics are a powerful force, which is often ignored by investors. Nor will concerns about energy use, or the environment, etc., cause this industry any anxiety.

Individual Competitive Advantage in Industry: Scale, market leader, cost leader, regulated industry (yes, an advantage here I think; makes scale more important).

Major Risks: Government tries to squeeze insurers and HMOs more than expected, to make up for its own incompetence, inability to regulate more intelligently, and to assuage populist anger. All Boomers die young, quickly, and cheaply due to excessive drug use in the sixties and seventies. Poor corporate execution. DCF is hard on this one for me, hard to come up with estimates I feel I can rely on. This worries me. I am relying to some extent on my macroeconomic and demographic story, on my faith in a company (and management) that has historically performed very well, and on a comparison of current valuation to historical valuations. Yes, I understand the limitations of that. I don't see myself losing a bunch of money here, though, which is the most important thing. I view UNH has less of a risk than drug companies, which must face similar regulatory burdens, and which must also invent new drugs every decade.

Other health-related stocks I have my eye on: WLP, JNJ (own), ABT (own), PFE (own), BDX, ISRG, nursing home stocks (volatile, and often poorly run, sadly), and a few others.

Report this Post 6 Replies
Member Avatar TheDumbMoney (44.25) Submitted: 9/26/2010 2:46:18 PM
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Nice op-ed, a good reason for a youngster like me at least to load up on some healthcare stocks, only way to get some of this dough back!

http://www.bloomberg.com/news/2010-09-24/poor-kid-on-block-fleeced-by-the-elderly-commentary-by-laurence-kotlikoff.html

Member Avatar Shirewood (23.33) Submitted: 10/27/2010 6:07:54 PM
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Croic?

Member Avatar TheDumbMoney (44.25) Submitted: 10/28/2010 7:27:34 PM
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Shirewood, forgive my ignorance, I have no idea what you're referring to by that.

Member Avatar Eudemonic (67.22) Submitted: 2/14/2012 10:35:05 AM
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Perhaps it means cash return on invested capital ?
http://www.oldschoolvalue.com/stock-screener/cash-return-on-invested-capital-croic-stock-screen.php

Member Avatar TheDumbMoney (44.25) Submitted: 4/18/2012 4:01:24 PM
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Yeah, I did eventually figure that out. :-) I was used to the term ROIC.

Member Avatar TheDumbMoney (44.25) Submitted: 5/30/2013 1:35:38 PM
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Add 20 shares at $64.045, in my IRA. No commission. Note that all of my recent purchases do NOT reflect a ton of new money I am adding to the market. Rather, I recently rolled two old 401ks over (which were fully invested in bonds and stocks) to my IRA. I am slowly phasing that money into index fund purchases and individual stock purchases. I have actually reduced the new money I am adding to the market as it has reached new highs. After three-plus years of wildly investing new money in the market (relatively), I have for example just reduced my 401k contributions to my present employer's 401k plan from a full $17,500/year rate, to 2% of income. I am planning to use that money instead to focus more on paying down remaining extremely low-interest-rate (but variable) law school loan debt.

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