The Mastodon of Healthcare

Most earnings reports across all industries recently include the terms “inflationary pressures,” “short-term macroeconomic conditions,” “labor shortages,” and, of course, “supply chain issues” to justify why revenues are down or flat. The S&P 50 index has declined by over 20% to date, with signs of sliding further.

Clearly, the economy cannot be described as recession-proof. It typically follows a relatively predictable, albeit irregular, path commonly called the economic cycle. Needless to say, recessionary periods can be heartbreaking and brutal for the market and its investors.

However, some sectors are somewhat immune to the ups and downs of the economy. These industries provide investors with recession-proof stocks that can be held onto during these challenging periods. One of them is the healthcare industry.

Healthcare stocks, particularly high-quality businesses, tend to be viewed as recession-proof. Despite the economic turbulence, companies in this sector still enjoy relatively solid and steady demand. That’s not entirely shocking since people can’t exactly just cancel their healthcare needs.

No matter what’s happening in the world, when you’re unwell, you have no other option but to see a doctor and get medicine.

Within the healthcare sector, not all businesses are created equal. Some still felt the recession's nasty consequences, while others managed to thrive.

One name that continues to impress amid the economic turmoil is UnitedHealth Group (UNH).

Basically, UNH operates 2 main segments.

One is UnitedHealthcare, which offers a complete range of healthcare insurance. The other is Optum Health, which provides data-driven healthcare gathered from partner surgery centers. It also obtains information from OptumRx, UNH’s pharmacy management arm.

Both UnitedHealthcare and Optus Health delivered excellent results to date, boosting the company’s full-year guidance from $20.85 to $2105 in terms of EPS. In comparison, UNH recorded an annual EPS of $18.08 back in 2021.

In the first 9 months of 2022, UNH raked in $192.5 billion in revenue. This shows a 14% increase year over year. Meanwhile, its earnings per share climbed to $16.15 compared to the $13.82 it reported during the same period in 2021.

One of the key drivers for these results is the boost in the number of subscribers to UNH’s services, which rose by 850,000 in 2022. Apart from these, the company has an attractive dividend that keeps investors satisfied. For the 13th consecutive year, UNH has raised its dividend, announcing a quarterly boost of 14% to reach $1.65.

Keep in mind that the health insurance industry climbs higher each year, and COVID-19 has forced everyone to reconsider and review their perspectives towards healthcare.

On top of these, UNH’s long-term growth is supported by the inevitable: the continuous and increasingly expensive demands of an aging population. That is, the company has a massive addressable market that keeps on expanding year after year.

Looking at the trajectory of this industry, it is estimated that 73.5 million individuals will be enrolled in Medicare by 2027. This represents a 28.5% boost from the 57.2 million reported in 2017.

Due to the increasing demands in healthcare in the coming years, particularly among the aging population, spending in this segment is also anticipated to rise rapidly. In fact, healthcare spending is projected to hit $6 trillion annually by 2028.

Thus far, UNH is hailed as the leading company in healthcare. The company’s hegemony looks and feels incomparable, and none of its competitors appear to be strong enough to dethrone it. For context, the leading rivals of UNH in the US include Humana (HUM), Cigna (CI), Elevance (ELV), and CVS Health (CVS).

For these competitors to stand a chance at beating or at least competing with its on equal grounds, they would need to merge—a move they’ve all attempted in the past but were blocked by regulators.

Overall, UNH remains a solid choice, especially during these trying times. This company is a widely respected mastodon in the insurance market worldwide, showing off substantial growth in revenue and profit practically every year. Buy the dip.