Each week you'll learn how to be a better dividend investor and follow the journey of a welder with a passion for passive income to $1,000,000 and beyond.
Share
🔪The Falling Knife I'm Not Catching
Published 9 days ago • 5 min read
UnitedHealth Group (UNH) has been absolutely everywhere in the news lately, and everyone's sharing their hot takes on whether this is a buying opportunity or a value trap, so I figured I'd throw my two cents into the ring.
First, the timeline of events to date:
April 17: UNH missed earnings for the first time since 2008 and slashed its guidance. The stock crashed 20% in a single day.
May 13: CEO Andrew Witty suddenly resigned for "personal reasons," and the company also completely withdrew its 2025 guidance, citing "accelerating medical costs." The stock dropped another 18%.
May 14: The Wall Street Journal reported that the DOJ is conducting a criminal investigation into UNH for possible Medicare fraud. This time, the stock briefly touched $248!
May 21: The Guardian published an investigation alleging that UNH secretly paid nursing homes to reduce hospital transfers, potentially putting patients at risk to save money.
So yeah, it's been a REALLY rough month. But wait! There's More!!
ValuePenguin chart
UNH denies claims at a 32% rate according to ValuePenguin data, which is literally double the industry average of 16%. UNH disputes these numbers and says it approves 90% of claims, but the disconnect here tells you everything about how confusing insurance metrics can be.
Regardless of what UNH says, when your customers are saying things like "F***ing United Health!" (direct quote from my coworkers), you've got a brand problem that goes way beyond spreadsheets.
UNH's Medicare and retirement business generated $139.5 billion in 2024, accounting for 47% of its total revenue. If the DOJ finds them guilty of Medicare fraud, they could be banned from the Medicare program for at least 5 years!
UNH 2024 Annual Report
The stock has been demolished, down 51% over the past six months. We're talking about a company that went from around $600 to under $300. For a Dow component, that's basically unheard of.
UNH 6M Price Chart
Joseph Carlson posted something on X that stuck with me: "I never think it's a good idea to invest in companies that their own customers hate. The fact that customers love Costco, Texas Roadhouse, Amazon, Netflix, etc is a very positive thing for the business. You want customers on your side. United Healthcare, and other insurance companies are probably some of the most hated companies in the world by their very own customers."
Joseph Carlson X post
I can confirm this from personal experience. My work switched to UNH from Blue Cross Blue Shield this year, and nobody is happy about it. I've heard coworkers complain about claims being denied, having to find new doctors because their current ones aren't in-network, and paying more money for coverage they find very difficult to use. My own family has had to find different doctors who aren't in-network from the switch. And again, I've heard the phrase "Fu**ing United Health SUCKS!" on more than one occassion by different people.
Stephen Hemsley, who had run UNH from 2006 to 2017, returned as CEO. He immediately put his money where his mouth is, buying 86,700 shares at $288.57 per share - that's $25 million of his own money. Insider buying is a nice vote of confidence and all, but it doesn't magically fix their problems.
CEO-Buys.com
Look, I'm attracted to beaten-down, well-known companies like a sailor on shore leave to a strip club. However, I've been burned by this before with Intel (INTC) and AT&T (T), which has since become a rocket ship since I sold it. Companies like Boeing and Disney, though, show that sometimes when a stock falls hard, it stays down for a long time and is a potential "dead money" situation.
The thing about UNH is that you're basically betting on the DOJ investigations concluding in their favor (if they're real), healthcare reform not happening, their ability to control medical costs, the new CEO turning things around, and their reputation recovering.
That's a lot of ifs for me.
I'm getting whatever UNH exposure I want through the index funds I already own. They say don't try to catch a falling knife - wait for it to hit the floor, rattle around, and start climbing before you try to pick it up. UNH needs the legal issues resolved, a clear plan from Hemsley (or his successor), and some actual proof that they can control costs and improve customer satisfaction.
Until then, I'll be watching from the sidelines, perhaps with an adult beverage.
What's your take on UNH? Are you buying this dip? Avoiding it completely? Waiting like me? Have you had your own horror stories dealing with United Healthcare? Drop me a line and let me know - I'll respond to every reply!
Disclaimer: This is not investment advice, just one person's opinion on a very complicated situation. Do your own research before making any investment decisions.
😁THANK YOU to all who responded to the last newsletter!!
I had never heard of Jim Zimmerman or his daughter Abagail from Lowell Capital Management, but very much enjoyed this conversation and they re-ignited my desire to look for small companies that are cash flow positive, easy to understand, solid balance sheets and have high returns on capital... I think you'll enjoy this one too.
🎦If you missed it, I shared results after 1 year from an experiment I ran using Joel Greenblatt's magic formula... and the stocks I picked for the next one!
Click the image above, sign up for a 7-day free trial, get $30 off an annual PREMIUM SeekingAlpha.com subscription + the next Alpha Pick FREE!
*This is an affiliate offer, and I will receive a small commission at no additional cost when you buy a premium annual subscription after clicking the image above.
Introductory offer for first-time subscribers only. $30 off Premium for the first year. At the end of the free trial (or immediately if you are no longer eligible for a free trial), $269 is charged automatically for the first year of your annual subscription. Auto-renews at the then-current annual list price (current list price is $299). You will receive the May 15th strong buy pick from Alpha Picks. The pick will be sent via email to your email address associated with your Seeking Alpha account.
Each week you'll learn how to be a better dividend investor and follow the journey of a welder with a passion for passive income to $1,000,000 and beyond.
I decided to buy an exploratory position last week in the world's leading animal health company, Zoetis (ZTS), because of something that Motley Fool co-founder David Gardner once said. To paraphrase David, he said that if you have conviction in a stock, you should buy it, but in three blocks with the money you set aside for the purchase. If the stock price goes up after you buy, then you purchased the first block at a discount. But if the price goes down, then you can buy the next block...
Famed investor Peter Lynch wrote about "buying what you know" and looking for stock ideas in products or services that you use. While I was in our shop this week, I noticed the green Waste Management wheelie bin, and then a can of Krylon spray paint caught my eye. I felt like Cole Sear in the Sixth Sense - "I see DIVIDENDS. All the time. They're EVERYWHERE!" To share with you my chilling experience, I snapped some actual pictures of real-life DIVIDENDS at work! Buckle up for five products and...
Charlie Munger once shared a simple tip at the 2012 Berkshire Annual Shareholder meeting: "The other thing that is helpful in reverse is to look at what other smart people are buying. That is not a crazy search method as a way to sort opportunities to consider." -Charlie Munger I love this approach! Finding stock ideas by watching what the pros do can be a great starting point, but they're just that - ideas. Without your own good reason for buying a stock, you won't develop conviction....
