The 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 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! 😊