Full disclosure, fellow investors: I'm as perplexed by the health insurance reform "conversation" as the next sentient citizen. Year in and year out, the cost of health care out-inflates all comers, and yet the beat goes on. And on and on and on ...
So too does the beating we all take in the form of higher insurance premiums. The math only gets uglier the farther out you look. The U.S. will spend roughly $2.5 trillion on health care this year, after all, and over the last 10 years, health-care costs have increased at four times the rate of inflation.
Here's a shocker
Dyed-in-the-wool cheapskate that I am, I too have an overheated opinion about what should happen on the health care front, but I'll spare you yet another one of those and cut to the chase: Plain and simple, the stock to buy if Obamacare looks destined to lose is UnitedHealth Group (NYSE: UNH ) .
For my money, it's the insurance industry's best operator -- though, to be sure, it's struggled of late. The Minnesota-based concern has posted anemic earnings over the last three years, for example, even as its industry average rose at a double-digit clip. More bad news: UnitedHealth's debt profile goes the other way, with the company's debt/capital ratio surpassing the level of leverage sported by close competitors such as Aetna (NYSE: AET ) and WellPoint (NYSE: WLP ) .
So what's UnitedHealth got that those companies don't?
Just this: A valuation profile that prices the firm well below even a painstakingly conservative estimate of fair value. The company is cheaper than the broader market (as measured by the S&P 500), and it's trading at a healthy discount relative to peers in terms of price-to-cash flow over the last 12 months, too.
About that cash flow: UnitedHealth delivered roughly $3.5 billion of the stuff in fiscal 2008. And while that represented a sharp reduction relative to frothy fiscal years in 2006 and 2007, the company is on the comeback trail, posting almost $4.3 billion in FCF over last 12 months. Not for nothing, then, have insiders been snapping up shares thus far this year.
I suspect those will turn out to be Foolishly wise purchases of a great company in an industry poised to profit once the uncertainty discount currently afflicting health care fades -- and with it, perhaps, any chance of reform. The market absolutely hates mystery, after all, a dynamic that can afflict even "safe haven" sectors like health care.
All of which leads to this question: Why not just bypass the uncertainty for now and go where the growth already is? Apple (Nasdaq: AAPL ) and Oracle (Nasdaq: ORCL ) , for example, actually managed to grow revenue and free cash flow during an economically miserable 2008. So too did Pepsi (NYSE: PEP ) and Google (Nasdaq: GOOG ) .
What's more, if analysts are even just directionally accurate, there's more growth where that came from: That fantastic four are expected to increase earnings at a double-digit clip over the next five years.
Pay for the privilege
Alas, those fine firms aren't exactly bargain-bin specials: Golden growth has been priced into these companies' shares. All but Pepsi trade at more than 20 times current earnings, and even Pepsi -- a stock I'm a big fan and erstwhile owner of -- trades at 18 times cash flow, following the healthy run-up it's enjoyed over the last six months.
Not so much for UnitedHealth, though: It's a great company in a regulatory risky business that's currently trading for a proverbial song. As the conversation evolves toward what could very well be toothless reform -- complete with an expanded base of customers who are required to purchase health insurance, no less -- I suspect its stock price will shine.
The Foolish bottom line
One stock, of course, doesn't add up to Foolishly diversified sector exposure, but not to worry: While United Health is indeed a three-time recommendation of the Fool's Inside Value, the service has tapped eight other health care concerns -- one of which (and only one) currently appears on Inside Value's list of Best Buys Now. That distinction owes in part to a price more than a third below the team's penny-pinching estimate of intrinsic value.
A sneak-peek at that company -- and every other recommendation the service has made, each of which comes with a recommended "buy below" price -- is completely free for the clicking. Grab your guest pass here: It could be just what the doctor ordered -- particularly if the words "Obamacare FAIL" flow across your Twitter feed as summer fades to fall.
Shannon Zimmerman runs point on the Fool's Duke Street and Ready Made Millionaire services, and he runs off at the mouth each week on Motley Fool Money, the Fool's fast n' furious podcast. A fresh edition of MFM hits iTunes each Friday, and you can listen by clicking here. (Link opens iTunes.) Shannon doesn't own any of the stocks mentioned. Google is a Motley Fool Rule Breakers recommendation. Apple and UnitedHealth Group are Motley Fool Stock Advisor picks. UnitedHealth Group and WellPoint are Motley Fool Inside Value selections. Pepsico is a Motley Fool Income Investor recommendation. The Fool owns shares of UnitedHealth Group. You can check out the Fool's strict disclosure policy right here.