If You Have the Stomach, Start Buying UNH Stock as It Bottoms Out

UnitedHealth (NYSE:UNH) delivered a perfect score Tuesday releasing Q1 2019 earnings that ticked all the boxes. Earnings? Up. Revenue? Up. Estimates? Beat on the top- and bottom-line. Yet, UNH stock dropped by more than 4%.

United Health Stock

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If you’re a shareholder of UnitedHealth or other healthcare stocks selling healthcare plans, you’ve got to be worried that Bernie Sanders or one of the other Democratic candidates proposing a universal health care plan gets into office.

Howard Schultz, who’s against the proposal, recently had this to say about the idea of “Medicare-for-All”.

“The Democrats are now saying, ‘Medicare-for-all.’ That’s their solution, which is basically a $33 trillion number, which would take 180 million Americans off of the insurance that’s provided by their employer, wipe out the insurance industry. It’s not realistic,” Schultz told Yahoo Finance.

Yikes. That’s an ominous thought if you work for UnitedHealth or own UNH stock. If there’s no insurance industry, can UnitedHealth remain in business?

It probably could.

UnitedHealth’s Other Business

UnitedHealth has two reportable segments: UnitedHealthcare (health benefits) and Optum (health services).

I’ll admit I’m not a healthcare expert, but reading its 10-K, it would appear that most, if not all of Optum’s revenues would remain intact in the event of a shift to universal healthcare. The only two areas of this segment that look to be at risk are Optum Financial Services, which operates health savings accounts, and OptumRx, which provides pharmacy care services to 65 million Americans through many of its health plans.

But even there, it’s possible that both of these areas would survive under universal healthcare.

I know that here in Canada where I live there are lots of private insurers providing health and wellness benefits including pharmacy care above and beyond our government-run healthcare system.

So, in 2018, Optum had $101.3 billion in revenue and 8.2 billion in operating earnings. Until we know otherwise, I would assume that a majority of this revenue would carry on under a universal healthcare plan.

What About UnitedHealthcare?

This is where it gets a little dicey.

Howard Schultz states a universal healthcare system like Medicare-for-All would wipe out the insurance industry. He’s half right.

What Schultz forgets is that somebody has to operate the insurance system that provides universal healthcare, for example an agency that takes care of paying the doctors, hospitals, and other healthcare workers covered under the system. The agency would also have to collect the money required to operate such a system from federal and state tax revenues.

All of this takes an incredible amount of human resources.

I don’t see why someone like UnitedHealthcare couldn’t be a critical piece of this “Super” agency. America is all about outsourcing. While the system of payment might change, some of the current players could take a role in transforming America’s healthcare system.

So, the fact that UnitedHealth CEO David Wichmann is harping about Sanders plan suggests he’s positioning the company for a seat at the table.

“[Medicare-for-All would] surely jeopardize the relationship people have with their doctors, destabilize the nation’s health system and limit the ability of clinicians to practice medicine at their best,” Wichmann stated. “And the inherent cost burden would surely have a severe impact on the economy and jobs — all without fundamentally increasing access to care.”

While I understand Wichmann’s scare tactics, he has no way of knowing (same goes for Schultz, a so-called expert in healthcare) what the burden or cost will be on the American people.

It’s possible that more jobs could be created from a government-run system than currently exists. After all, a government-run system’s goal is to break even while Mr. Wichmann has a board and shareholders to answer to. His viewpoint on cost, burden, etc., is completely biased.

In 2018, UnitedHealth’s health plan business generated $9.1 billion in operating profits from $183.5 billion in revenue. Optum made almost as much from 45% less revenue.

It’s also possible that UnitedHealth could end up making more from less than it currently does.

The Bottom Line on UNH Stock

If you currently own UNH stock, I wouldn’t start to get worried just yet. Even if Bernie Sanders were to get into power, it would take years to implement such a change.

However, you need to ask yourself two questions.

First, is the opportunity cost of patiently holding UNH stock when it’s facing severe headwinds, worth it? After all, there are so many other stocks you could buy with better near-term prospects.

Secondly, do you have the risk tolerance for riding this storm out?

If you do, I’d be buying UNH stock at $220 and hoping it falls below $200, so you can buy some more.

The choice is yours.

At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media, https://investorplace.com/2019/04/buying-unh-stock-as-it-bottoms-out/.

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