You might think UnitedHealth Group Inc. (UNH) would be on the ropes. One of its top executives was shot dead, its CEO resigned for personal reasons, and the federal government is probing its billing practices.
But executives at this health-insurance and health-services giant apparently don’t think doom is knocking at the door. Five of them have bought the company’s stock in the past few weeks, including CEO Stephen Hemsley.
Barrage
The barrage of bad news that has hit United Health this year is remarkable.
Here’s a chronology of some of the events that have rocked the company in the past six months.
On December 4, 2024, a gunman shot and killed Brian Thompson, the CEO of UnitedHealthcare, the company’s insurance arm and biggest component.
Five days later, police arrested Luigi Mangione, a 26-year- old cum laude graduate of University of Pennsylvania with a master’s degree in computer science. Shell casings at the scene of the crime bore the words “delay, deny, depose.”
A number of Americans expressed more outrage against insurance companies than they did against the murder.
On May 13, UnitedHealth Group said that CEO Andrew Witty had resigned for personal reasons.
On May 14, the Wall Street Journal reported that the U.S. Department of Justice is investigating the company for possible criminal Medicare fraud. The company said it hasn’t been notified of any investigation.
In the past half-year, the stock has declined from well over $600 to the present price of about $313.
Buyers
On May 16, Hemsley paid $25 million to buy 86,700 shares of the giant health-insurance and health-care company. That was the largest purchase by a corporate insider at any company in May and early June.
He served as UnitedHealth’s CEO from 2006 to 2017. He resumed that office in May, taking over from Witty. After his big purchase in May, Hemsley now owns 1,112,339 shares, worth about $349 million at the June 13 closing price of $313.53.
John Rex, the company’s president and chief financial officer, spent close to $5 million on May 16 to add to his holdings, now worth about $66 million.
Three directors, Kristen Gil, John Noseworthy and Timothy Patrick Flynn, also bought some shares on May 14 and 15.
Punished
Has this stock been punished too harshly? In my opinion, yes.
UnitedHealth Group hasn’t had a loss in the past 30 years. In the past decade, its revenue and earnings have grown at double-digit rates, averaging more than 11% a year for revenue and 17% a year for earnings.
The stock now fetches a down-to-earth multiple of 13 times earnings. The typical multiple in the past ten years has been close to 22.
The balance sheet doesn’t look bad either. The company’s debt is about 86% of stockholders’ equity, which is within the band I consider okay.
The company’s profitability looks strong. I consider a 15% return on stockholders’ equity good, and 20% excellent. UnitedHealth Group in the past four quarters has been 24%, and it has been above 20% in seven of the past eight years.
It’s worth noting that the recent buying represents a trend reversal. From June 2022 through the end of 2024, no insiders bought shares but several sold. This year, almost all of the activity has been on the buy side.
My guess, therefore, is that Hemsley and the other UnitedHealth executive will end up being glad about their May purchases.
The Record
Today’s column is the 74th one I’ve written about insiders’ purchases and sales. I can tabulate one-year results for 64 of them – all those from beginning of 1999 through a year ago.
A year ago, I recommended Globe Life Inc. (GL) and Skyworks Solutions Inc. (SWKS). The former rose 50.3% but the latter slumped 19.5%. For the same period, the Standard & Poor’s 500 Total Return Index returned 14.5%
Stocks that I recommended based on insider buys have returned an average of 9.2% a year – decent, but 1.3 percentage points less than the index.
Stocks that I said to avoid, even though insiders were buying, have under-performed the index by 24.3 percentage points.
Stocks where I noted insider buying, but made no comment (or an ambiguous comment) have beaten the index by 14.1 percentage points.
Stocks where I noted insider selling have done 2.3 points worse than the index.
Bear in mind that my column results are hypothetical and shouldn’t be confused with results I obtain for clients. Also, past performance doesn’t predict the future.
Disclosure: I own UnitedHealth Group shares personally and for many of my clients.