Analysis: UNH

After you receive this Alert, we will be buying 25 shares of UnitedHealth Group (UNH) at roughly $238.65. Following the trade, UNH will represent 2.71% of the portfolio.

Ever since the voracious selling began in the health insurance stocks about one week ago (see our Alert here), we have tracked UNH for a possible purchase. In fact, in our Alert from this Monday, here, we presented the case why we would have been buyers of UNH at its price if we were not restricted from trading. Now that our restrictions have been lifted and the stock has returned to the ~$237 level (at the time this was written), we will be adding to our position.

What has been bringing the stock down of late? Investors have been fretting what the recently introduced "Medicare for All" bill will mean for the future health insurance companies, ignoring the facts of how the bill does not have enough support on both party lines and its funding costs will likely be too exorbitant (we mentioned this last week in our Alert here). We acknowledge that this headline risk may linger in the short-term, however, this is classic shoot first, ask questions later type behavior that creates opportunity.

For starters, shares are only $5 above (at the time this written) its Christmas Eve low of $232.56, which is pretty remarkable when you think about it because the company is doing so well. When management reported its fourth quarter earnings back in January (see our Alert here), they handily beat expectations and reiterated a 2019 outlook that called for adjusted earnings per share growth of about 13% year over year using the midpoint of their $14.40 to $14.70 range. So in a year where many investors are fearing a corporate earnings recession, they have completely taken down the stock of a consistent, double-digits earnings grower and cash machine to its pre-Fed pause/trade progress levels. We think this makes the stock's ~16x consensus 2019 adjusted earnings per share multiple attractive.

Plus, let's not forget about the huge share buyback program management currently has in place. Last June in a press release, here, the company announced a buyback plan that authorizes management to purchase over time 100 million shares, which represented approximately 10% of the shares outstanding at the time. Management buying stock hand over fist should offer support for the stock in the long run. Although this trade breaks our cost basis discipline, we believe the reasons above make it worth it.