WellPoint, Inc. (WLP): The Mysterious Undervaluation of Health Insurers

The only responses I get from that are political, and when you try to make business political it’s an absolute certainty you’re going to lose money.

Another Place to Play

UnitedHealth Group Inc. (NYSE:UNH) has been especially aggressive in grabbing Medicare accounts, and facilities managers. It bought XLHealth in 2011 and followed it up with two Florida purchases last year.

In addition to providing insurance and, now, providing care to some patients, UnitedHealth Group Inc. (NYSE:UNH) has been a leader in Health IT, combining a number of companies under the brand name Optum. This means it has records and statistics showing what the proper treatment regimen should be, and the power to make doctors follow best practices. This saves money, and improves profitability.

Being further down the road in this way, UnitedHealth Group Inc. (NYSE:UNH) sells at a premium to WellPoint, Inc. (NYSE:WLP), a 13.76 P/E. For the quarter ending in June it earned $1.436 billion on revenues of $30.4 billion, and that revenue number is 11.6% higher than the same quarter a year earlier. Its balance sheet shows $10 billion in cash and just $15 billion in long-term debt, and its operating cash flow has been rising steadily each year, most recently standing at over $7 billion.

Despite this, UnitedHealth still trades at a discount to the general market, albeit a premium over the price currently being paid for WellPoint.

My Foolish bottom line

When the objection to an investment is political, while the numbers look both good and sustainable, ignore the politics and make yourself some money. WellPoint, Inc. (NYSE:WLP) is one of the best bargains in the market right now, and most of the other insurers, like UnitedHealth, are equally as attractive.

As the Affordable Care Act rolls out over the next year, and both savings and profits become realized, political opposition will go down, and the value of having these accounts will only grow. Barring a radical change toward a single-payer system, or the repeal of the law, the health insurers are a great place to put money to work.

The article The Mysterious Undervaluation of Health Insurers originally appeared on Fool.com and is written by Dana Blankenhorn.

Dana Blankenhorn has no position in any stocks mentioned. The Motley Fool recommends UnitedHealth Group and WellPoint. The Motley Fool owns shares of WellPoint. Dana is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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