Key Points
Imagine that you want to invest in the healthcare industry — perhaps because it’s so big, with healthcare spending making up 18% of the entire U.S. economy (as of 2024), or because it’s widely expected to grow by about 5.4% annually, between 2024 and 2034, per the Centers for Medicare and Medicaid Services. You might reasonably consider investing in the giant UnitedHealth Group (NYSE: UNH).
Its market value was recently $389 billion, and it has averaged annual gains of 15.8% over the past 15 years (as of July 6). Hold on, though, because there are some reasons to not invest in the company.
Why invest in UnitedHealth Group?
Let’s start with reasons to invest, though. For starters, like many other companies, it’s investing in artificial intelligence (AI), reportedly generating about $2 of value for every $1 it spends, and planning to spend billions of dollars on AI in the coming years.
Its stock is arguably appealingly valued, too, with a recent price-to-sales ratio of 0.84, below the five-year average of 1.13. (Its price-to-earnings (P/E) ratio is a bit above the five-year average, though.)
While the stock has robust long-term average annual gains, its more recent averages are less robust. Over the past three years, for example, the stock averaged an annual loss of almost 2%. Over the past year, though, it’s up 38% (as of July 6).
Its recent results suggest a turnaround is indeed happening, with its medical care ratio (the share of premium revenue it pays out in medical claims) falling to 83.9% in the first quarter, from 84.8% a year earlier.
It’s also a diversified business, offering health insurance, healthcare services, and pharmacy benefits.
Why you might not invest in UnitedHealth Group
While UnitedHealth is growing, it’s not growing very briskly. In its first quarter, for example, revenue grew 2% year over year, to $112 billion — but that was down from the previous quarter’s $113 billion.
Consider, too, that the company has been in the news a lot in recent years, and not for very nice reasons. For example, the Department of Justice is conducting both criminal and civil investigations into how UnitedHealth reportedly bills the government for Medicare Advantage members. There are also reports and lawsuits alleging that the company denies many enrollees’ claims — more than it should. All this means that UnitedHealth is spending a lot of money on legal activities.
Meanwhile, its Medicare Advantage program is challenged, as costs have been rising, leading to smaller profits from the amounts the government pays. The company has responded to this by looking to shrink its membership rolls — by more than a million people. If this business stabilizes, the growing senior population can provide a steady stream of profitable new members.
All this makes me loath to invest in UnitedHealth Group, but you may decide differently. Remember that there are plenty of other promising healthcare stocks to consider.
Should you buy stock in UnitedHealth Group right now?
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Selena Maranjian has no position in any of the stocks mentioned. The Motley Fool recommends UnitedHealth Group. The Motley Fool has a disclosure policy.
