My UNH Thesis: Betting on a Healthcare Giant's Come BackThe healthcare sector has been in decline, which creates interesting opportunities. I recently talked about a few pharma plays - Eli Lilly, Novo Nordisk, and Pfizer.
Here's why I'm investing in NYSE:UNH :
UnitedHealth Group (UNH) has tanked ~50% in the past year, but the July 29 (VERY SOON) earnings could flip the script. As a historically dominant player, UNH is now undervalued amid sector weakness, offering massive upside if regulatory fears ease.
Here's my full bull case. 👇 FUNDAMENTAL ANALYSIS
Why the Sell-Off? A Perfect Storm of Bad News
UNH crushed the market for 15 straight years (2009-2023) with positive returns, predictable EPS growth, and 134% gains over the last decade.
But 2024 brought chaos:
Feb: Massive cyber attack caused a one-time EPS hit (non-recurring).
Ongoing: DOJ antitrust probe, criminal fraud investigation, rising Medicare costs, and Optum losses.
April: Disastrous Q1 earnings miss + lowered guidance.
Leadership drama: CEO death.
This erased gains (down 7% over 5 years), amplified by healthcare sector outflows—the biggest since 2020. But is this overblown? Signs point to yes. The markets almost always overreact to bad news.
Bullish Signals: Insiders Betting Big
The tide is turning:
Insider Buying Boom: $32M+ in 2024 (vs. $6.6M in 2019), including new CEO/CFO—highest in 15 years.
Congress Buying: Q2 2024 saw net purchases for the first time in 5 years (vs. historical selling).
DOJ Shift: Probe refocusing on pharmacy benefits (PBM) unit, dropping acquisition/monopoly scrutiny—implies no major findings. Great news!
Sector Tailwinds: Healthcare is one of 3 S&P sectors below historical valuations. Super investors (usually tech-obsessed) are piling in, despite the sector's -10% YTD vs. S&P's +13%.
Plus, UNH's dividend yield is at a record ~3% (vs. 1.5% avg), with 16%+ historical growth and 100%+ free cash flow conversion. Rare combo of yield + growth!
Valuation: Screaming Buy?
UNH trades at PE ~11.9 (vs. 10-year avg 23)—a steal.
Analysts project 16.7% EPS CAGR through 2029.
Conservative Scenario: 16.5% EPS growth + PE to 16.5 = $780/share by 2030 (173% total return, 18% CAGR ex-dividends).
Optimistic: PE back to 23 = $1,084/share (280% return).
Models confirm:
DCF (8% FCF growth): ~$484/share (70% upside).
DDM (7% div growth): ~$607/share (112% upside).
Blended Fair Value: ~$545/share (75-90% upside from ~$300). Buy below $436 for 20% safety margin.
Still, there is fear of DOJ uncertainty—investors hate unpredictability and that's why the stock is so low.
Key Catalyst: July 29 Earnings
This could be UNH's "most important report ever." Watch for:
Regulatory/legal updates (DOJ progress).
Full-year guidance revisions.
Metrics like medical loss ratio and PBM performance.
Positive news = potential rocket 🚀. Expectations are low (20 bearish EPS revisions vs. 0 bullish), so a beat could spark volatility... upward.
Risks: Not Without Bumps
Regulatory escalation (e.g., PBM issues) could tank it further.
Short-term headwinds: Medicare costs, sector selling.
Mitigants: DOJ de-risking, strong FCF buffer, insider confidence. Enter cautiously—size positions small.
TECHNICAL ANALYSIS
I also did a little technical analysis:
UNH price is at a resistance level
My EVaR indicator tells me we are in a low-risk area
RSI says the stock is oversold
I added the different price targets for better visualization
THE PLAN
My plan:
Later today, I will allocate 1% to 1.5% of my portfolio to the stock. If it drops, I will continue to DCA. The stock is already really beaten down, and I think a company this large cannot drop much more.
Quick note: I'm just sharing my journey - not financial advice! 😊
