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Until very recently, UnitedHealth Group (NYSE: UNH) was seen as a safe-haven stock. As the largest health insurer in the US, it was largely immune to tariffs and considered recession-resistant due to the constant need for healthcare. It also pays a fast-growing dividend.
But there’s no such thing as a completely risk-free stock. Even seemingly stable juggernauts like UnitedHealth, which had a colossal $535bn market cap until last month, can enter crisis mode.
And that’s what has happened with the share price crashing nearly 48% inside a month! Prior to this, the stock had doubled in five years and more than quadrupled over a decade.
Here, I’ll look at what has happened, before assessing whether this fallen S&P 500 angel might be a candidate for my ISA.
Multiple challenges
UnitedHealth makes money in two main ways. First, through its insurance arm, it sells health insurance plans to individuals, employers, and the government (like Medicare and Medicaid). It collects monthly premiums from customers.
Second, its Optum division provides services like managing prescriptions and direct patient care. This division looks like it could be negatively impacted by President Trump’s executive order to lower US drug prices.
He stated: “We’re going to cut out the middlemen and facilitate the direct sale of drugs at the most favoured nation price directly to the American citizen.”
OptumRx functions as a pharmacy benefit manager — essentially a middleman in the drug supply chain. So there’s mounting regulatory risk here.
That’s not all. The company has also faced unexpectedly high medical expenses in its Medicare Advantage segment. This recently led to the suspension of its 2025 financial outlook, followed yesterday (13 May) by the sudden departure of CEO Andrew Witty.
Cheap valuation
For the full year, Wall Street still expects revenue to rise 12.5% to $450bn but earnings per share (EPS) to fall 9.5% to $25. This gives a low forward price-to-earnings (P/E) ratio of just 13.
Looking further out, double-digit EPS growth is forecast for 2026 and 2027, bringing the P/E ratio as low as 10.
There’s also a 2.7% dividend yield, which is historically high for UnitedHealth. The firm has raised payouts for 16 consecutive years, but there’s no guarantee that will continue.
On balance, the stock looks to offer a lot of value at the current price. The company covers over 50m people and is deeply embedded in the US health insurance system. My view here is that it’s oversold after its 48% crash, and therefore probably ‘on sale’ right now.
However, the fast-changing regulatory landscape and murky outlook for 2025 add too much uncertainty for me. I’d rather invest my money elsewhere for the next few years.
Taking stock
As an investor, I always try to learn lessons from such events. One key takeaway here is that the Trump administration is serious about trying to lower US healthcare costs.
Another thing Trump doesn’t like is high transaction fees, particularly those imposed by major payment networks like Visa and Mastercard. Visa is one of my largest holdings. Could it be the next UnitedHealth?
Well, it’s far more global than US-based UnitedHealth, which is a relief. But significant changes in how much Visa takes in fees could still cause a massive sell-off. Food for thought, at least.
