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Is UnitedHealth Group (UNH) A High Quality Stock To Own?

Fiduciary Management, Inc recently released its Q1 2020 Investor Letter, a copy of which you can download below. The FMI Large Cap Fund posted a return of -23.0% for the quarter, underperforming its benchmark, the S&P 500 Index which returned -19.60% in the same quarter. You should check out Fiduciary Management’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash. There weren’t a lot of funds who could deliver these kinds of returns without shorting the market or using aggressive put options.

In the said letter, Fiduciary Management highlighted a few stocks and Unitedhealth Group Inc (NYSE:UNH) is one of them. Unitedhealth engages in the provision of health care coverage, software, and data consultancy services. Year-to-date, UNH stock lost 0.4% and on May 14th it had a closing price of $290.61. Its market cap is of $280 billion. Here is what Fiduciary Management said:

“UnitedHealth Group is the combination of UnitedHealthcare (UHC), a leader in U.S. health insurance, and Optum, a data-centric powerhouse that provides services to UHC, other health insurers, and medical businesses of all types. In November 2019, UnitedHealth projected 2020 revenues of $209 billion for UHC (5.4% operating margins) and $128 billion for Optum (8.4% operating margins) before $76 billion in intercompany eliminations. UHC is 51% of profits and Optum is 49%. COVID-19 is creating some uncertainty in the near-term that may result in a spike in direct medical costs, but there are two short-run offsets: (1) near-term deferral of complicated and costly procedures, and (2) less risky population-level behavior (fewer ‘other’ infectious diseases, car crashes, sports injuries, etc.). Longerterm, the two biggest growth drivers for UnitedHealth continue to be (1) private insurers’ increasing penetration of Medicare Advantage and Medicaid Managed Care, and (2) medical cost trends (units + price) running about 5.5% in the U.S. (supported by demographics). The company believes it can achieve several years of 13%-16% EPS growth. It trades at a very reasonable mid-teens 2019 earnings multiple, pays a healthy dividend, and has a strong balance sheet.”

In Q4 2019, the number of bullish hedge fund positions on UNH stock increased by about 3% from the previous quarter (see the chart here), so a number of other hedge fund managers seem to agree with UNH’s growth potential.

Disclosure: None. This article is originally published at Insider Monkey.

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