1) UnitedHealth Group Incorporated (NYSE:UNH)
Average Upside Potential: ~36.5%
Forward P/E as of February 28: ~15.7x
Number of Hedge Fund Holders: 150
UnitedHealth Group Incorporated (NYSE:UNH) operates as a diversified health care company in the US. The company has a strong economic moat, which stems from the cost advantage and network effects. TD Cowen analyst Ryan Langston maintained a “Buy” rating on the company’s stock, setting a price target of $609.00. The rating is backed by strategic initiatives and pricing strategies that are expected to fuel growth. Furthermore, UnitedHealth Group Incorporated (NYSE:UNH) managed to improve its operating cost ratio, mainly because of its strategic portfolio initiatives, which continues to act as a positive indicator for future profitability.
The company’s diversified portfolio, spanning health insurance, healthcare services, and pharmacy benefits management, places it well for continued growth. The synergies between such segments enable UnitedHealth Group Incorporated (NYSE:UNH) for cross-selling opportunities and integrated care delivery models. With healthcare evolving towards value-based care, the company’s Optum segment remains well-positioned to capitalize on such a trend. Its strong Medicare Advantage growth and expanding presence in Medicaid markets can offer several avenues for revenue expansion and market share gains. Overall, UnitedHealth Group Incorporated (NYSE:UNH)’s strategy, which includes expansion of value-based care models and leveraging its scale and analytics capabilities to enhance its market share, is expected to fuel long-term growth.
Bretton Capital Management, an investment management company, released its Q4 2024 investor letter. Here is what the fund said:
“We invest in UnitedHealth Group Incorporated (NYSE:UNH) because we believe this revealed preference is real. The regulatory landscape changes constantly, there is plenty of noise in the system, and it is possible to imagine a world where health insurers would not be necessary. However, the massive healthcare system we’re in today structurally relies on private companies to play the crucial role of managing care and negotiating prices, and we don’t think the US government is prepared to take all that over. It was a bad year for our investment, as the stock returned a negative 2.4%, but it trades for a meaningful discount to the market despite consistently delivering double digit earnings growth for years, including 10% last year.
First, the elephant in the room. On December 4, Brian Thompson, who ran UnitedHealth’s insurance business, was assassinated in New York City. Shell casings had the words “deny” and “depose” written on them, a bullet was inscribed with “delay.” Five days later, Luigi Mangione was arrested in Pennsylvania with what appears to be the murder weapon and a manifesto criticizing the American healthcare system. Mangione has since become a cult celebrity.
Healthcare is not a normal market. Governments have decided that healthcare is worth intervening in to achieve noneconomic outcomes, most notably providing care for people who can’t afford it. Each country’s regulatory system designs its system and rations healthcare in its own way: the UK employs providers directly and attempts a central triage function to allocate care; continental European systems typically have private providers but some version of all-payer rate setting; and the US has a decentralized model where providers can charge whatever they want, but payers can choose not to pay it, plus government-run systems like Medicare and Medicaid that cover about 35% of Americans. Every system implements some type of brake on costs, usually a combination of the government and private companies, and the US system leans more on the private sector for this than others. Our system is not without its benefits. It is vastly more lucrative for providers like surgeons and medical device companies. It also allows for some measure of money signal; if you are a rich weekend warrior with an orthopedic issue, the American system will offer a dizzying array of cutting-edge specialists where the UK would suggest getting used to the feeling of aging and stiffening one’s upper lip. However, our system violates the social expectation of the word “insurance…” (Click here to read the full text)
While we acknowledge the potential of UNH as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued AI stock that is more promising than UNH but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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