There's an old -- and very appropriate -- investing saw that says, "Tips are for waiters." So I'm not going to bother giving you a stock tip. I do, however, have a stock idea for you.
What's the difference? Well, a stock tip is generally a hush-hush, wink-wink affair where the tipper expects the tip-ee to run out and buy the stock based on the tip alone. A stock idea, on the other hand, is a good starting point, but is in need of further research before it becomes a fully baked investment thesis.
So let's cut the jibber-jabber and get right to today's idea: UnitedHealth Group (NYSE: UNH ) . The Motley Fool's CAPS community has overwhelmingly recommended this stock, with more than 3,000 members giving it an outperform rating versus just 128 who have rated it an underperformer.
Let's take a look at how UnitedHealth compares to similar companies in the health-care industry:
|
Company
|
TTM Net Profit Margin
|
TTM Return on Equity
|
Price-to-Book Ratio
|
CAPS Rating
(out of 5)
|
|
UnitedHealth
|
3.6%
|
14.4%
|
1.4
|
*****
|
|
Aetna (NYSE: AET )
|
4.4%
|
15.2%
|
1.3
|
****
|
|
Coventry Health Care (NYSE: CVH )
|
2.4%
|
8.9%
|
0.7
|
****
|
|
WellPoint (NYSE: WLP )
|
4.1%
|
11.5%
|
1.0
|
****
|
|
Humana (NYSE: HUM )
|
2.6%
|
17.7%
|
1.1
|
***
|
Sources: CAPS, Yahoo! Finance, and Capital IQ, a division of Standard & Poor's. TTM = trailing 12 months.
As we can see from the chart above, UnitedHealth is the clear CAPS favorite in the managed-health-care industry. Some more research seems in order to figure out what's elevated it to this esteemed status, though. While the company's operating statistics are certainly attractive, they're not tops in the group. Plus, on a price-to-book basis, UnitedHealth's stock is the most expensive of the stocks above.
To get further insight on CAPS members' love affair with UnitedHealth, let's take a look at what CAPS All-Star TSIF said recently when giving the stock a thumbs-up:
Health care is not exactly thriving under economic/governmental uncertainty. The administration has indicated that medical records, reporting, and affordable health care are priorities and in my opinion UnitedHealth Group stands to gain more than it might lose. Decent margins, exceptional cash flow, relatively low forward P/E. If the governement stays out of nationalizing medicare and medicaid and UnitedHealth continues to shine in it's management and technology services then it should do well even if the recession lingers.
So what do you think? Is this an idea worth pursuing, or is UnitedHealth an overrated stock? Head over to CAPS and let the 135,000-member community know what you think. And if you're not sold on UnitedHealth, but want to take advantage of the collective intelligence of the CAPS community, fans of UnitedHealth have also been bullish on Johnson & Johnson (NYSE: JNJ ) and Apple (Nasdaq: AAPL ) .
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