UnitedHealth Group is forming a base and closing in on a buy point. This health stock, today's IBD 50 Stocks to Watch pick, is the leader in a rising industry group.
UnitedHealth Group holds the top spot out of 14 stocks in the medical-managed care industry group, according to IBD Stock Checkup. The group ranks 50th out of 197 IBD groups. It moved up from 65th place four weeks ago as the health care sector extends an autumn advance.
Health Stock Forming Flat Base
UnitedHealth is forming a flat base and is within 2% of a 558.20 buy point, according to MarketSmith pattern recognition. Shares rebounded after a positive Q3 earnings release Oct. 14, then pulled back in mid-November, dipping briefly below the 200-day moving average.
The stock dipped but bounced off its 50-day moving average after management gave updated full 2022 and 2023 guidance on Nov. 28, disappointing some analysts.
The company posted a lower than expected medical care ratio, a positive sign because a lower ratio is better. The metric measures premiums paid versus members' medical costs. Management sees the ratio climbing in 2023, as elective surgeries that were postponed during the pandemic are expected to increase, adding bigger payouts.
The health stock rebounded mid-November on news of its partnership with AARP Hearing Solutions as the administrator of AARP's prescription and over-the-counter hearing aids. The program is aimed at making hearing aid devices more affordable to millions of Americans.
The Dow Jones Industrial Average component announced at the same time that it is adding Life Time health clubs to its Renew Active fitness program. The program allows its participants free membership to Life Time gyms and online resources. The Renew Active fitness program covers over 10 million members.
Shares of the health stock are up over 7% quarter-to-date, and within 2% of an all-time high that coincides with its buy point.
Double-Digit Growth Expected
Quarterly EPS has been steadily rising, with the company posting $5.79 in Q3, up from $5.57 and $5.49 in the two prior quarters. Q3 earnings rose 28% from the year-ago period. Analysts are expecting 16% annual EPS growth in 2022 and 13% in 2023.
Quarterly sales growth had been consistent in the 12% to 14% range in the last few quarters.
UnitedHealth — the nation's largest managed-care provider — saw 26% return on equity in 2021, a measure of profitability and how well a company uses its assets. The CAN SLIM investing strategy looks for a minimum 17% ROE, with super-performing growth stocks at 25% to 50%.
Mutual Funds Show Conviction On Health Stock
Mutual funds own 53% of the health stock, with the number of funds owning shares increasing. In September, 5,462 funds held its shares, up from 5,410 in June and 5,066 in March.
The stock got a small boost after Credit Suisse raised its price target to 610 and maintained its outperform rating on the health stock on Wednesday.
