“Inversion” Helped Us (and Warren Buffett) Buy This Hated StockCharlie Munger had lots of great ideas - 'inversion' was one of his best.UnitedHealth Group’s stock has had quite a ride. The company’s new guidance disappointed analysts. The DOJ is investigating their billing. They’re getting a new CFO. The chart looked ugly. But Warren Buffett bought it. Today I’m going to take some ideas from Charlie Munger’s book and show you why we both bought the stock, even though there was so much negativity around it. Charlie loved the idea of inversion - that avoiding bad ideas and being stupid would take you a lot further than trying to be smart. Today, I’m going to present the bear case for UnitedHealth and see if we can’t kill this idea. The UnitedHealth Bear CaseThe stock has dropped for a number of reasons, we’ll dive into each one, but here’s the list upfront:
1. Missed Earnings, Reduced Guidance
This is significantly lower than recent EPS numbers. Earnings under $15 per share would take the company back to pre-COVID levels. At the current share price, EPS of $14.65 puts the company at a forward P/E of 17.8x. The consensus estimates don’t have the company’s earnings making a sharp recovery either: From this view, the company may not be as cheap as the trailing P/E of 11 makes it appear. 2. Regulatory InvestigationsUnitedHealth is facing increasing investigations and regulatory pressure. They are being investigated for billing practices in Medicare Advantage programs: |