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UnitedHealth Soars to Headline the Dow's 100-Point Gain

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Stocks have roared higher today despite little news from the broader economy as the Dow Jones Industrial Average (DJINDICES: ^DJI  ) has soared to gains of more than 110 points as of 2:15 p.m. EST. Dow component UnitedHealth Group (NYSE: UNH  ) , America's largest publicly traded insurer, has skyrocketed today, gaining more than 2% so far.

What's behind UnitedHealth's big day? Good news from a top rival and potential growing clarity on Obamacare's future have cropped up today. Let's check up on what you need to know.

Riding on Humana's momentum
UnitedHealth's jump owes partly to rival Humana's (NYSE: HUM  ) outperformance. Humana, the second-largest insurer by subscription in the country behind UnitedHealth, posted a strong third-quarter earnings report today that showed a 7% year-over-year gain in consolidated revenue. Humana's stock has jumped 2% today, and most of the insurance industry's biggest names have followed it up into the green.

It's a good sign for UnitedHealth investors who have grown nervous about the future course of the industry, especially after UnitedHealth posted rather mediocre third-quarter results of its own. UnitedHealth's revenue continues to grow, but the company's membership growth -- a key buffer against the rising costs predicted to come through Obamacare's launch this quarter and next year -- slowed in the third quarter.

Speaking of Obamacare, the Department of Health and Human Services isn't shying away from doubling down on this act's future. HHS Secretary Kathleen Sebelius today said to Congress that a delay of Obamacare is "not an option." Humana, meanwhile, also said today that it expects Obamacare's window of enrollment to be extended due to the website's many glitches and problems. An extension could certainly help bring in more customers for insurers, but will it help UnitedHealth in 2014?

Initial enrollment numbers are thought to be low since the exchanges opened up for new insurance customers a little more than a month ago, but UnitedHealth and other major insurers continue to deal with a murky future concerning this law as Capitol Hill wrangles over its fate. A clearer picture would help settle insurance companies' outlooks, and if Sebelius' words are true, than UnitedHealth and other top insurers can better prepare for 2014.

UnitedHealth has taken a cautious approach to the new law by inching into only a handful of states' individual insurance markets for the new exchanges, a decision that may cost it some Americans looking for insurance but should keep projected cost increases down -- especially if younger, healthier Americans don't sign up for the law in the numbers projected. A larger number of sicker and elderly new customers would mitigate the benefits of signing up new customers by driving up medical costs, which have already been increasing lately for the company. UnitedHealth's medical costs jumped nearly 12% over the first half of 2013, outpacing a strong gain in premium revenue.

So long as UnitedHealth can get a handle on costs and keep premiums bringing in cash, it'll be on pace to succeed in 2014. Moving cautiously into Obamacare's first year looks like a safe and smart strategy for this top insurer -- and its investors.

How will Obamacare impact your portfolio?
Obamacare seems complex, but it doesn't have to be. In only minutes, you can learn the critical facts you need to know in a special free report called Everything You Need to Know About Obamacare. But don't hesitate, because it's not often that we release a free guide containing this much information and money-making advice. Please click here to access your free copy.

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Related Tickers

9/23/2016 4:55 PM
^DJI $18261.45 Down -131.01 -0.71%
HUM $175.55 Down -0.44 -0.25%
Humana CAPS Rating: ****
UNH $140.51 Down -0.53 -0.38%
UnitedHealth Group CAPS Rating: ****