By Frank Gristina – Portfolio Manager, Acadia Wealth Advisors
For years, clients asked me why we didn’t own UnitedHealth (UNH) in our dividend strategy. The answer was always: “I missed it.” Well, no one is asking that anymore, and I’m not going to miss it this time.
The stock is down nearly 40% over the last twelve months. The healthcare industry continues to be a pariah for both political parties. Healthcare insurance might be a dirty, morally challenging job, but somebody has to do it. I find myself with a unique opportunity to buy the bellwether in the health insurance space with a large dividend and low P/E. Let’s call this a washed-out stock, but a far from dead company.
What Could Go Wrong?
If I ask myself: “What else could happen to hurt the share price?”
- CEO departure? No – already happened (twice).
- Cut and suspend guidance? No – already happened.
- Analyst downgrades and target cuts? No – already happened.
- Multiple contraction of valuation and EPS? No – already happened.
- What if the U.S. nationalized healthcare? Not very likely for 3.5 years.
Why It’s Cheap, and Worth Owning
If I ask myself: “Why is it cheap, and why is it worth a weighting in the portfolio?”
- Company is still growing revenue 5–10%, and the service is essential.
- EBITDA margin is stable around 10%.
- Dividend is historically established and grows 10% per year (may slow for optics).
- Current dividend yield is 2.8% (compared to 1.5% historically).
- Shares are trading at a sub-10 forward P/E.
- A return to historic intrinsic value (e.g., $25 in earnings with an 18 multiple) implies at least a 30% share price increase.
The Big Picture
Value investing is always about buying stocks when they’re out of favor, and remembering that it’s often darkest before the dawn. And of course: doing your work.
I believe the “blackout” moment happened for UNH a few weeks ago when they suspended forward guidance. We’re now seeing positive technical traction in the stock. I just don’t anticipate any more shoes to drop.
So what do you think? I would love to hear your thoughts. Click here to let me know.
Frank.