So UnitedHealth is getting smashed lately (down 3% yesterday on a flat day for the market) and -13% from where it was just a month ago. This has nothing to do with earnings, their revenues were up 8% from Q2 last year.
When I try to research why the stock is down, I see 2 reasons-
- “Hurr durr- recession incoming!”
- “Medicare for all will destroy them!”
I think both arguments are nonsensical, and this stock will rebound.
If there was mutual consensus of an imminent recession, one would assume other stocks would be pummeled just as bad (if not worse) than UNH. Health Insurance is a recession proof business, so if anything, this stock would be one of the safer investments in that scenario.
This argument doesn’t make sense. The aging of the baby boomers and increased reliance on health care is a mathematical fact and one of the few guarantees out there.
The political argument is much more interesting. There are fears that a Bernie Sanders/ Elizabeth Warren presidency would lead to Medicare for All(M4A) and thus UnitedHealth and all other health insurance companies would be wiped out of existence. Regardless of whether you think this is a good policy idea or not, the reality is that it is extremely unlikely to happen from a political logistics perspective.
M4A has zero support among Republican politicians, and even among democrats, it’s a divisive issue, with moderate dems (I.e. Joe Biden) not in favor of it.
Even when the Affordable Care Act (Obamacare) enjoyed universal support among Democrats and they had majorities in the house and the senate, major concessions still had to be made to republicans to make the bill pass. UnitedHealth did just fine under Obamacare. How could they pass M4A without control of both chambers, or party-wide consensus?
It’s simply not going to happen, at least not in our current political landscape. Bernie/Warren would need to win the presidency, the senate would need to become deep blue (unlikely in this election cycle, republicans are pegged at 69% odds to keep the senate after 2020 on political betting sites, let alone Democrats getting the super-majority needed), Democrats would need to reach complete political lockstep behind their progressive wing in a miraculously short time period, the healthcare lobbyists and donors would need to be thanos snapped out of existence, etc.
My point is, regardless of your political ideology, UnitedHealth is a safe play from a logistical perspective. They are undervalued at a forward p/e of 16.52, despite having strong growth and no apparent headwinds from a business perspective.
So that is why I believe now is a great time to buy UnitedHealth if you are looking to enter the health insurance market.
Disclaimer: This content does not necessarily represent the views of IWB.