Enjoying This Healthcare Giant’s Terrible, Horrible, No Good, Very Bad Year

Listen, I’ve been around this market long enough to remember when healthcare stocks were boring dividend plays that our parents owned for the steady income.

Well, times have changed, and so has UnitedHealthcare (UNH), but sometimes the old investing wisdom still applies: buy when there’s blood in the streets, especially when it’s someone else’s blood.

Let me tell you what’s really going on here while everyone on Wall Street is having conniptions over headlines.

UnitedHealth just got served a reality sandwich with a side of humble pie, and frankly, it was about time.

These folks got cocky with their Medicare Advantage pricing for 2025, underestimating medical costs by a whopping $6.5 billion. And, no. That’s no rounding error.

But here’s the thing that separates the men from the boys in this business: Warren Buffett just bought 5 million shares worth $1.57 billion.

Now, I’ve disagreed with Warren plenty over the years, but the man didn’t get to where he is by throwing good money after bad. When Berkshire backs up the truck, you better believe there’s value hiding under all that panic selling.

The numbers don’t lie, even when management wishes they would.

UNH is trading at P/E levels we haven’t seen since 2014, and the enterprise value to EBITDA ratio sits 30% below sector median.

This doesn’t signify market efficiency. Instead, this is fear creating opportunity for those of us old enough to remember that every crisis eventually becomes someone’s buying opportunity.

Now, I’m not going to sugarcoat this. The company screwed up their medical trend assumptions worse than my kid’s first attempt at filing taxes, and now they’re looking at a 41% decline in adjusted earnings per share for 2025.

But here’s what the panic merchants are missing: UNH has a plan that actually makes sense.

Come January 1st, they’re repricing 80% of their premium revenues with about 10% increases baked in. They’re also showing over 600,000 unprofitable members the door – mostly those high-maintenance PPO customers who cost more than they’re worth.

Sometimes you’ve got to fire your worst customers to save your business.

The vertically integrated model still works, even if the execution got sloppy. When you own both the insurance company and the healthcare delivery system through Optum, you control costs in ways that give traditional insurers nightmares. That’s not going away because of one bad year of underwriting.

What worries this old timer is the concentration risk building up.

More Optum patients are carrying UHC insurance, which means less diversification and more eggs in one basket. That’s fine when times are good, but it amplifies the pain when things go sideways, as we’re seeing now.

The political noise is just that – noise. Sure, the DOJ is sniffing around, but they’ve been doing that for decades.

Healthcare regulation is like the weather. Everyone complains about it, but it’s always going to be there.

Companies that process one in four healthcare dollars in America don’t get dismantled; they get regulated. There’s a difference.

Management is targeting 2-4% margins for Medicare Advantage in 2026 and full recovery by 2027. Given their pricing power and the housecleaning they’re doing with unprofitable members, those targets look achievable rather than wishful thinking.

For those of us who remember when stocks were bought based on fundamentals rather than tweet sentiment, UNH represents exactly the kind of opportunity that builds wealth over time.

The company faces real challenges, but at these valuations, a lot of bad news is already priced in.

Sometimes the best investments are the ones that make your stomach churn a little when you buy them. UnitedHealth might just be one of those times when being uncomfortable pays off handsomely down the road.