UnitedHealth Group
Then again, Warren Buffett recently sold his entire UnitedHealth position, as well as all his holdings in health-care company WellPoint
If you're more bullish on the health-care sector than Buffett, should you buy UnitedHealth? Or are there other health-care companies in a better position to put money into your pocket?
We asked our Motley Fool CAPS community to nominate two Healthcare Providers & Services peers that are likely to outperform UnitedHealth Group.
And the nominees are ...
Our 165,000-plus-member CAPS community considers McKesson
The main driver here will be the Technology Solutions arm, which has generally been growing faster than Distribution and carries significantly higher gross margins (46.4% vs. 3.8%, respectively). The federal government has focused on reducing health care costs, and the expanded use of information technology to improve the efficiency of data management will benefit McKesson. ...
The firm also has a very strong competitive position. McKesson is one of only 3 major pharmaceutical distributors, the other two being Cardinal Health
(NYSE: CAH) and AmerisourceBergen (ABC). Operating margins are very low in this business (barely over 1%), making economies of scale a major roadblock to new competitors. It is unlikely that the existing oligarchy will be broken any time soon. The Technology business benefits from high switching costs. Once a hospital or practice integrates McKesson's software, it is time consuming and costly to switch to a competitor, unless there are significant reasons to do so. Competitive position is strong and durable.
MagicDiligence also points out that 26% of McKesson sales come from two customers: CVS Caremark
Now, if you're looking for a micro cap that may grow up to become the next Healthcare Provider & Services superpower, the CAPS community suggests Prospect Medical Holdings
Make your vote count!
Do you agree that McKesson or Prospect Medical may be better buys than UnitedHealth? Click over to CAPS, and let the rest of the community know what you think.