Universal American Corporation (UAM): This Health Insurer Is Still Undervalued

However, if you’re looking for a stock that provides consistent dividends, then you’ll have to go with someone like UnitedHealth (1.40%) or Aetna (1.30%). Universal American has plenty of upside, but won’t give you that regular income stream as a shareholder.

Operations

Universal American’s MBR (Medical Benefit Ratio) for Q1 2013 was 80.3% all-in, and 83.5% if you factor out positive development from prior year. That’s solid.

Administrative expenses for Q1 2013 were 11.9%. That’s not real great, but at least the trend is positive. In Q1 2012, admin expenses were 12.4%. So, the company is clearly taking steps to get the admin expenses down (hopefully under 10% eventually), but they are still higher than investors would like to see.

The bottom line

If you can handle a little more risk that comes with a smaller company, then Universal American can work for you. Its extremely low price to book value means that you can enjoy a floor under that stock any time there is a sell-off. After all, if you’re already getting $1.30 of assets for every $1 that you put in, how much cheaper can the stock really get unless something goes massively wrong.

As the chart above shows, thus far in 2013, any time the stock has crept down to around $8.50, you would have had a great opportunity to buy…three times in the first five months! Use this already cheap valuation to your advantage. If the stock sells off from its current levels, then jump on it. It’ll be a great long-term ride from there.

The article This Health Insurer Is Still Undervalued originally appeared on Fool.com and is written by Dave Zaegel.

Dave is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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