Login | January 23, 2018

UnitedHealth Group and other health insurers good for long-term growth



MALCOLM BERKO
Taking Stock

Published: January 11, 2018

Dear Mr. Berko: What do you think of the big health insurance companies, such as Aetna, Cigna, UnitedHealth Group and Anthem? My stockbroker wants me to sell UnitedHealth Group short because he thinks President Donald Trump and his followers are going to cut medical costs by allowing insurance companies to reduce reimbursements to doctors and hospitals, stop covering procedures that can be proved medically not necessary (such as spinal fusions, knee replacements, coronary stents and gallbladder and prostate removals) and demand larger copayments for other procedures. My broker wants me to short UnitedHealth because it's the biggest, most profitable and highest-priced health insurer of all of them. Because of Trump, my broker believes that health care stocks are in a decline and are not good investments. -- TT, Durham, N.C.

Dear TT: Following this guy's advice is about as dangerous as chasing chickens on a California freeway. If Trump and company eliminate certain procedures, require higher copayments, etc., health insurers will see their profits rise, not decline. Health care stocks, like defense stocks, if purchased long term, are among the most profitable investments one can make. Your broker's brain is rolling downhill.

Imagine, TT, if good health were to break out all over the nation. Imagine if humans magically developed an immunity to all diseases and every newborn came into the world as healthy as a horse -- fit as a fiddle, strong as an ox. Think about it. Wouldn't that be wonderful? Wouldn't living in the U.S. be hunky-dory? Wouldn't everyone be happy? Wouldn't everybody be fruitful and multiply?

Well, not on your sweet bippy! The answer is "no," a thousand times "no!" It would be catastrophic, calamitous and cataclysmic! Millions of Americans would be unemployed. Hospitals would close their doors. Medical equipment companies, drug companies, rehab centers and pharmacies would all be out of business. Frankly, the shock would cause the American economy to crumble, the stock market to crash and trillions of dollars to be lost, and along with that, UnitedHealth Group and every health insurer would be forced into bankruptcy.

I think UnitedHealth Group (UNH-$222), headquartered in Minnetonka, Minnesota, is a supercalifragilistic long-term investment. I'd buy the stock faster than you could say "Indiana Jones!" Credit Suisse, Argus Research, Ned Davis Research, Standard & Poor's, Thomson Reuters, Market Edge, Bank of America, Morgan Stanley, Deutsche Bank, BMO Capital Markets and Charles Schwab agree. However, Morningstar disagrees, citing accusations of inaccurate and inflated billing and a little nervousness regarding some role changes in the UNH executive suite.

UNH sells health benefit plans and services for national employers, public-sector employers, midsize business employers, small businesses and ordinary folks like us. UNH also sells health and well-being services to folks 50 or older, addressing their needs for preventive and acute care health services. It also provides Medicaid plans, children's health care programs and dental benefits. UNH's OptumHealth offers health management services, care delivery and management, wellness and consumer engagement, and financial services. Its OptumRx provides pharmacy care services and programs, and its OptumInsight provides software and information products, business process outsourcing and support services to hospitals, physicians, life science companies and other organizations.

In 2008, UNH was trading at $20. Today UNH trades at $222, and some observers believe that UNH could trade at $300 by the summer of 2020. In 2008, UNH posted earnings of $2.95 a share, with revenues of $81 billion. By this year's end, UNH should report earnings of $9.90 a share, with revenues of $200.4 billion. And many believe that earnings in 2018 will come in at $11 a share, with revenues at $219 billion. The dividend in 2008 was a parsimonious 3 cents. This year, it's $3, and Wall Street believes it could be $3.30 next year.

UNH, with nearly a billion shares outstanding, is an expialidocious choice for long-term appreciation. Meanwhile, Vanguard, BlackRock, T. Rowe Price, J.P. Morgan and State Street own nearly 250 million shares. Your broker needs serious counseling.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.


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