Static UnitedHealth Group Inc Stock Doesn’t Offer Much Upside

UNH stock - Static UnitedHealth Group Inc Stock Doesn’t Offer Much Upside

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Thanks to the dramatic differences in approach between the current and prior presidential administrations, healthcare is an incredibly unpredictable sector. Nevertheless, if you’re UnitedHealth Group Inc (NYSE:UNH), you’ve got a tight handle on things. As one of the world’s biggest healthcare companies, UNH stock seems like a sure bet.

However, will sheer size alone be enough for the markets?

Management seems to think so. Over the past decade, UNH has implemented a blunt-force attack on the broader healthcare sector. To stay competitive against rival insurance providers and hospitals, the healthcare giant bought as many doctors as they could. The idea here is that having doctors under its umbrella will lower patient-care costs. Also, it will help prevent patients from running up onerous hospital bills.

As our own Lawrence Meyers explains, UNH has been acquisitive, purchasing OptumHealth and DaVita Inc’s (NYSE:DVA) medical group division. Such aggressive strategies brings even more doctors under their control. Once the DaVita physician group transfer is complete, UNH will have a formidable moat, potentially raising sentiment for UnitedHealth stock.

While this approach has its critics, I’m not really sure that management has a choice in the matter. Potential healthcare disruptors Walmart Inc (NYSE:WMT) and, Inc. (NASDAQ:AMZN) are eyeballing this sector like bloodthirsty animals. Industry rivals, in a bid not to get disrupted, are following UnitedHealth’s lead.

According to Bloomberg, healthcare is an arms race. Still, it’s a race that UNH stock should win given the underlining company’s resources.

Everyone Believes in UNH Stock, Except UNH Themselves

My initial opinion about UnitedHealth stock is similar to the covering analysts’ assessment, none of whom are bearish. UNH is a massive entity that only continues to get bigger. It’s making the right deals and doing everything it needs to prevent an Amazon onslaught.

Moreover, execs demonstrate creative, out-of-the-box thinking. In a joint effort among UnitedHealth, Humana Inc (NYSE:HUM), Quest Diagnostics Inc (NYSE:DGX) and privately held MultiPlan, the organizations are exploring a technology pilot utilizing the blockchain.

While cryptocurrency opinions are split, the blockchain enjoys consensus support. The decentralized database platform offers obvious cost-savings potential for healthcare firms due to its rapid-fire efficiency, and data integration. Also, the blockchain natively offers immutability, and therefore, data security.

My question then is this: why can’t UNH stock gain more traction?

After digging into the company records, I had an even bigger question: why doesn’t anyone on the inside track not want to bet on their own organization?

Granted, insider transactions are not the end-all, be-all. Part of the compensation of working in a miserable, corporate desk job is the ability to sell your employer’s equity. I get it. It’s another form of income. I’ve been there and done that.

UNH stock, insider transaction volume
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Source: Source: JYE Financial, unless otherwise indicated

Another curious factor is that UNH stock has 90.2% institutional ownership. That by itself is not a bad thing, per say. However, in a severe downturn, the institutions that own UNH could dump it to “save their quarter,” for example. It’s just another factor that brings up questions.

Can UNH Keep Up the Frenzy?

Whether UnitedHealth stock succeeds will depend upon the company’s ability to sustain its aggressive strategy. Perhaps it can, but this is an incredible undertaking for any organization.

Examining their financials, I’m concerned about their sharply rising debt levels, as well as their free cash flow. Lately, it has been dipping into negative territory, which by itself does not warrant a red flag. Nevertheless, with high-roller competitors lurking in the midst, I wonder about UNH’s appetite for margin-hurting conflict.

These questions bring me back to UNH stock and its technical chart. Like I said, it’s not going anywhere, and I think I know why: simply put, better options exist.

I’m not suggesting that you should short this healthcare provider. What I am saying is that I’m not buying it … why would I? This is a risky proposition on top of the fact that UnitedHealth stock has risen significantly over the past five years. With its business plan getting more expensive by the hour, I have to do what their execs are doing: sit out.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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