Blue chip stocks possess several important attributes. The businesses behind the stocks are large and financially strong and usually leaders in their markets. They also have a reputation for dependability.
Thanks to those characteristics, you won't have many chances to buy blue chip stocks at steep discounts. They're typically too stable and steady. Every once in a while, though, one of these stocks will stumble. Investors currently have a once-in-a-decade opportunity to buy and hold a blue chip stock that's down roughly 50% below its previous high.
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A beaten-down blue chip stock
What is this rare investment opportunity? UnitedHealth Group (UNH 0.50%), an unquestionably blue chip stock.
UnitedHealth Group ranks as the largest health insurer in the U.S. and is one of the largest companies in the entire healthcare sector based on market cap. The company's Optum Rx unit is the third-largest pharmacy benefits manager (PBM).
UnitedHealth Group generally reports strong revenue and profits quarter after quarter. Over the last 10 years, its trailing-12-month revenue has soared by roughly 260%. The company's trailing-12-month earnings have nearly tripled during the period.
But UnitedHealth Group is now a beaten-down blue chip stock. Its share price has plunged around 50% below the peak set in the fourth quarter of 2024. Multiple factors explain this steep sell-off.
The company suspended its full-year 2025 guidance, mainly because of higher-than-anticipated Medicare Advantage costs, and its former CEO Andrew Witty unexpectedly stepped down. The Wall Street Journal reported that the U.S. Department of Justice has launched a criminal investigation into UnitedHealth Group for potential Medicare fraud.
President Trump announced his intention to curtail PBMs and "cut out the middleman." Nearly everything that could go wrong for UnitedHealth Group has gone wrong.
What history shows
Is UnitedHealth Group's massive meltdown really a once-in-a-decade opportunity? Actually, it's more like a once-every-15-years opportunity.
The last time the health insurance stock fell by 50% or more was a slump that began in early 2006 and accelerated during the financial crisis of 2008 and 2009. UnitedHealth Group's stock also plunged by 50% or more in 1992 through 1993.
Both of those previous sharp sell-offs gave patient investors excellent buying opportunities. If you had bought $10,000 of the stock after UnitedHealth Group stock fell 50% in 2008 and 2009 and held onto all your shares, you'd have over $96,000 today. And that's including the recent major decline.
If you invested $10,000 in the stock after it plummeted 50% in 1992 and 1993 and held on for the ride, your shares would now be worth close to $500,000. Before the latest sell-off, your investment would have grown to over $1 million.
Is this time different?
Buying UnitedHealth Group stock in the past after a decline of 50% or more could have made you a lot of money. But is this time different? I don't think so -- at least not if you wait long enough.
Most of the issues that UnitedHealth Group currently faces should be only temporary. Increased premiums will take care of the higher Medicare Advantage costs. The departure of Witty as CEO led to the company bringing back former CEO Stephen Hemsley, who has the experience and ability to turn things around.
The alleged DOJ probe hasn't been confirmed yet. Even if there is an investigation, the worst-case scenario would likely be steep fines -- and that's only if the company were found to have committed Medicare fraud.
President Trump (or any other political leader) will have a hard time eliminating PBMs from the U.S. healthcare system. I wouldn't rule out some reforms that negatively impact UnitedHealth Group's PBM business, but the company would probably be able to successfully navigate regulatory changes as it has done in the past.
Maybe I'm being overly optimistic. However, I suspect that many people advocating for buying UnitedHealth Group in 1992/1993 and 2008/2009 were viewed as overly optimistic, too. History shows which perspective proved to be right.
