Why UnitedHealth Group Will Move the Dow Tomorrow

Earnings season continues as the health-insurance giant reports. Find out what to expect.

Jul 16, 2014 at 12:30PM

The strong results we've seen in the first week of earnings season have helped push the Dow Jones Industrial Average (DJINDICES:^DJI) to fresh intraday highs. Yet tomorrow morning, Dow investors will get a new read on the economy from a different perspective, as health-insurance giant UnitedHealth (NYSE:UNH) will give its latest results. Even as most investors will be focused on how UnitedHealth does compared to WellPoint (NYSE:ANTM) and other insurance peers, UnitedHealth's results will have implications for Dow companies elsewhere in the health care sector. With reform affecting all corners of the health care market, investors can't afford to watch only a single part of the sector to get a full understanding of the state of the industry.

UnitedHealth expects to release its earnings report before the market opens Thursday morning -- last quarter's report was available to the public just after 6 a.m. EDT. The Dow component will then hold a conference call at 8:45 a.m. EDT to discuss the results.

Source: UnitedHealth.

Investors aren't entirely confident about UnitedHealth's prospects, with expectations that revenue will rise while net income levels fall. It's tempting to blame health care reform for the earnings shortfall, and indeed, adapting to the new requirements of the Affordable Care Act and other federal program guidelines has taken substantial effort for UnitedHealth. One of the biggest risks that UnitedHealth, WellPoint, and their peers have to deal with is the potential for dramatic cuts in reimbursement rates from Medicare and other federal and state-government programs. Obamacare in particular has increased reliance on Medicaid, and while that has helped bolster customer counts for health insurers, it also makes insurers even more dependent on what the government decides is appropriate payment for the services that UnitedHealth and its peers arrange for.

But UnitedHealth faces some other issues that have held back its performance recently. Pharmaceutical companies both within and outside the Dow Jones Industrial Average have seen substantial growth lately, with blockbuster drugs coming to market and helping to replace revenue from older drugs that have lost patent protection. For UnitedHealth, WellPoint, and other health insurers, though, brand-name drugs represent a huge cost of business, eating into their profit margins and diverting income toward pharma giants. Similarly, medical-device innovations can boost prospects for the companies that produce and sell them, but high-priced equipment often leads to higher costs for procedures, and that can crimp UnitedHealth's profits as well.

UnitedHealth will move the Dow tomorrow as investors look not only at the prospects for the health insurance industry, but also at its interaction with drug companies and other health care providers. In the fixed-sum game of health-care reform, gains for UnitedHealth almost certainly come at the expense of other players in the industry, and Dow investors must accurately assess which companies will feel the brunt of any pain that helps UnitedHealth boost its profits.

Leaked: This coming blockbuster will make every biotech jealous
The best biotech investors consistently reap gigantic profits by recognizing true potential earlier and more accurately than anyone else. Let me cut right to the chase. There is a product in development that will revolutionize not just how we treat a common chronic illness, but potentially the entire health industry. Analysts are already licking their chops at the sales potential. In order to outsmart Wall Street and realize multi-bagger returns you will need The Motley Fool's new free report on the dream-team responsible for this game-changing blockbuster. CLICK HERE NOW.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends UnitedHealth Group and WellPoint. The Motley Fool owns shares of WellPoint. Try any of our Foolish newsletter services free for 30 days. 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 has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information

Compare Brokers