By Timothy Lutts, Chief Analyst, Cabot Stock of the Month
From Cabot Wealth Advisory 11/24/15 Sign up for Cabot Wealth Advisory—it’s free!
Currently, Cabot Benjamin Graham Value Investor’s Value Model Portfolio has 16 recommendations, which are all rated buy, but only if they trade below their recommended Maximum Buy Price.
I looked them all over, evaluating both the charts and the fundamentals, and here’s my favorite:
UnitedHealth Group (UNH)
With revenues of $147 billion, UnitedHealth is 57 times the size of Maiden Holdings. As the largest provider of managed healthcare services in the U.S., its stock tends to ebb and flow with every large change in our health care system.
But the company is growing, with revenues advancing slightly under 10% in most recent years. It pays a solid 1.8% dividend.
And, it’s undervalued today, which gets us to the heart of the Cabot Benjamin Graham Value Investor system.
Every stock recommended in Cabot Benjamin Graham Value Investor has been quantified using 44 separate measurements. These include measures of quality (like earnings stability), measures of value (like current PE ratio vs. historical PE ratio), measures of growth (like earnings acceleration) and technical measures (like relative strength).
The result of all these calculations is a Maximum Buy Price and Minimum Sell Price for each stock. If you buy when a stock is below its Maximum Buy Price and then simply hold until it’s above its Minimum Sell Price (and you do it with a diverse group of stocks), you’ll be a successful investor.
Now, the big news last week was that UnitedHealth complained that the exchange business of the Affordable Care Act were too costly for it, and that it might pull out. (It’s not the only company making that threat.)
The result was a high-volume selling day that took the stock down just three points to 110, which is basically where it’s bottomed four previous times over the past three months.
Which means there’s support there. Some institution has been repeatedly buying at that level.
Which means the odds are high that this is a bottom. Which means that if UNH is selling below its Maximum Buy Price today, it’s a good buy!
And you can discover this Maximum Buy Price simply by becoming a regular reader of Cabot Benjamin Graham Value Investor. Details here.
From Cabot Wealth Advisory 10/25/12 Sign up for free Cabot Wealth Advisory e-newsletter
UnitedHealth Group (UNH) is a U.S. leader in health care management and provides a broad range of health care benefits and services, including health maintenance organizations (HMOs), point of service (POS) plans, preferred provider organizations (PPOs), and managed fee for service programs.
Gains from the rising Medicare population will be offset by future rate cuts in Medicaid and Medicare during the next several years. The recent acquisition of XLHealth, which serves seniors with special needs, will add to 2012 EPS and beyond.
In July, the U.S. Defense Department awarded its Tri-Care contract to UNH. The five-year contract will provide a noticeable boost to UNH's sales and earnings.
UNH is gaining market share by lowering costs and increasing services to customers. I forecast revenue and EPS (earnings per share) growth of 8% during the next 12 months ending 9/30/13. At 11.1 times latest EPS of 5.00, UNH shares are undervalued. The 1.5% dividend yield and Very Low Risk rating make UNH an excellent investment choice.
|UnitedHealth Group (UNH)
UnitedHealth Group Center
9900 Bren Road East
Minnetonka, MN 55343
|Index Membership: Dow Jones Composite, Dow Industrials
Industry: Health Care Plans
Full Time Employees: 99,000
10/25/12 UnitedHealth Group (UNH): Leader in health care management