Today's IBD 50 Stocks To Watch pick is UnitedHealth Group, as shares near a new buy point. UNH stock is down 3% for the year after gliding 43% higher in 2021.
The Dow Jones Industrial Average component, stock market leader and megacap health-care play has been working on a flat base with a 509.33 entry since early January, according to MarketSmith. Shares pulled back alongside the market last month but were quick to reclaim the 50-day line and push higher.
Recently, the market has been favoring leaders like UNH stock, which maintains a low P-E (price-to-earnings) ratio and offers investors growth at a reasonable price.
The stock dipped on Thursday, down around 2%, but is holding on to a net weekly gain of around 1%. Currently, the stock is supported by some top-rated mutual funds like Fidelity Contrafund (FCNTX) and Franklin Growth (FKGRX). Fund sponsorship is an important indicator to consider and shows there's institutional support behind the stock's upside move.
With double-digit year-over-year earnings and sales growth in recent quarters, UnitedHealth is showing signs of strength. Fourth-quarter earnings were released on Jan. 19, and showed UNH topping estimates and standing by 2022 guidance. Shortly after, the stock rallied to reclaim the 21-day and 50-day moving averages.
Currently, shares sit 4% below the proper buy point.
The relative strength line shows positive action in recent weeks as it notches a new high on the weekly chart. Notably, this is a stage one base, which means it has a higher chance of working out than a later stage base. But in either situation, a market in a strong uptrend always boosts the prospects of a good breakout and profitable move to new highs.
UNH Stock: Earnings And Sales Growth
UnitedHealth managed to grow revenue and earnings at an impressive rate in the two most recent quarters. Year-over-year earnings growth came in at 29% and 78% in those quarters, respectively. Sales rose 11% and 13% vs. year-ago levels in the two most recent quarters, respectively.
Meanwhile, medical costs as a share of premiums came in at 83.7% in Q4.
As growth prospects of the health insurance industry continue to improve, UnitedHealth Group is certainly poised to benefit. In 2021, UNH was the largest health insurer in the world by revenue, with sales topping $286 billion for the year. The company's 2022 and 2023 annual earnings are also expected to grow by 14% each.
The firm's total insurance customer count grew to 50.6 million in the fourth quarter, which represents year-over-year growth of 4.5%. Coupled with its health insurance premium increases, the company managed historically robust sales growth for Q4.
"Our strong 2021 performance and confident growth outlook for 2022 and beyond reflect the accelerating innovation and expanding capabilities across Optum and UnitedHealthcare," CEO Andrew Witty said in a statement.
