The Big Money Says to Sell UnitedHealth Group

One of the great maxims of traders and Wall Street pros is to follow the "smart money."

I'm not much for the thesis that institutional shoppers tend to make smarter investing decisions, but many of you who've read my ruminations on insider buying say you'd also like to know how the Big Money is betting. Your wish is my command.

Next up: UnitedHealth Group (NYSE: UNH  ) . Are institutions bullish or bearish when it comes to this national health insurer?

Foolish facts

Metric

UnitedHealth Group

CAPS stars (out of 5) ****
Total ratings 3,475
Percent bulls 95.4%
Percent bears 4.6%
Bullish pitches 503 out of 533
Highest rated peers Alliance One International, America Service Group, CBIZ

Data current as of Nov. 30.

UnitedHealth insures my little editorial services company, so I know it well. And I'm not much of a fan. Lately, our carrier has been sticking us with some very big bills and pushing back on needed treatments.

As a patient, I'm frustrated. As an investor, I have to admit the stonewalling probably helps UnitedHealth's "float," a pool of cash for investments and unpaid claims and expenses. Having cash on hand allows UnitedHeath to generate ever-increasing amounts of investment income.

Profits are never guaranteed, of course. But over the past five years, UnitedHealth has increased earnings by 9.5% annually. Normalized net income is up 22% over the last 12 months. In comments to investors made earlier today, executives predicted "meaningful organic earnings growth" for 2012, Dow Jones Newswires reports. Fools are expecting nothing less.

"My analysis shows this stock is undervalued. [Price-to-earnings] is 8.5-ish. Dividend growth in the last five years has been very good. Debt is well under control. [Price-to-sales] is around 0.4, which is less than half the five year average (though in line with the industry right now). PEG ratio is 0.9. Earnings yield is over 11! Currently at 10-year lows in [price-to-book], P/S, [price-to-cash flow], P/E. Future expectations are too low," wrote Foolish investor dumberthanafool in September.

Institutional ownership history

Top Owners

2007*

2008*

2009*

Latest*

Wellington Management Company

26,415,911

102,161,679

80,522,313

77,957,427

BlackRock

12,189,517

13,427,295

77,145,219

66,845,133

Fidelity Investments

49,298,089

51,788,940

54,782,005

43,805,154

Capital Research and Management

81,273,000

68,181,200

54,780,000

43,592,611

The Vanguard Group

38,343,851

39,129,861

39,477,350

41,217,131

TOP 25 TOTAL

417,723,150

458,142,409

539,149,584

583,787,869

Source: Capital IQ, a division of Standard & Poor's.
*Indicates the number of shares owned.

As a group, institutional investors also seem to think the stock is too cheap. They're net buyers over the past year and past three years.

But not the top five owners; four of them have sold since December. BlackRock, Fidelity, and Capital Research and Management have shed roughly 33 million shares of UnitedHealth this year.

Competitor and peer checkup

Company

Institutional Ownership

Insider Ownership

Aetna (NYSE: AET  ) 93.07% 0.20%
CIGNA Corporation (NYSE: CI  ) 84.89% 0.73%
Coventry Health Care (NYSE: CVH  ) 90.46% 1.38%
Humana (NYSE: HUM  ) 91.96% 0.83%
MedcoHealth Solutions (NYSE: MHS  ) 75.64% 0.43%
UnitedHealth Group 89.95% 0.63%
WellPoint (NYSE: WLP  ) 87.59% 0.31%

Source: Capital IQ. Data current as of Nov. 30.

We can't know exactly why they're selling, and unfortunately, this table may not offer much in the way of clues. UnitedHealth's ownership profile is about on par with all of its insurance industry peers, though MedcoHealth leaves the most headroom for Big Money buyers.

My guess is UnitedHealth's Big Money sellers are less worried about the business and more worried about the still-unknown impact of implementing health care legislation. Institutions move into and out of positions too fast to accept uncertainty. So while UnitedHealth's numbers may look good now, worried investors may need proof the all's well before buying back into the stock.

Now it's your turn to weigh in. Do you think the institutions are wrong about UnitedHealth Group? Let us know what you think using the comments box below. You can also recommend other stocks for me to evaluate by sending me an email, or replying to me on Twitter.

Interested in more info on UnitedHealth Group? Add it to your watchlist by clicking here.

BlackRock, UnitedHealth Group, and WellPoint are Motley Fool Inside Value picks. Coventry Health, MedcoHealth Solutions, and UnitedHealth Group are Motley Fool Stock Advisor selections. Motley Fool Options has recommended subscribers open a diagonal call position in UnitedHealth Group. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool owns shares of UnitedHealth Group. The Fool is on Twitter as @TheMotleyFool. Its disclosure policy is smarter than the average bear.


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