The market has abandoned UnitedHealth Group (UNH -0.22%), and that's exactly why I'm buying it. While investors flee the stock over rising medical costs and regulatory headlines, they're missing a crucial fact -- this is still the most dominant health insurer in America trading at recession-level valuations. At 11.5 times projected 2027 earnings, the pessimism looks overdone.
The collapse has been breathtaking. Down 47.6% year to date as of this writing (Aug. 13, 2025) in a market hitting record highs, UnitedHealth faces real challenges: medical costs rising faster than premiums, a potential $1.6 billion settlement over billing practices, and regulatory scrutiny of its Optum unit. These aren't minor headwinds.
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But excessive pessimism creates opportunity, especially when it involves a company processing $1.7 trillion in medical payments annually with no real competitor matching its scale.
The math behind the contrarian play
Trading in the low $270s, UnitedHealth has fallen more than 57% from its 52-week high of $630.73. At about 11.5 times projected 2027 earnings, the stock is priced as if its profitability will remain permanently impaired. While some large-cap peers such as Elevance Health and Cigna currently trade at lower forward multiples, UnitedHealth's scale, vertical integration, and cash generation give it advantages those competitors cannot match.
Wall Street analysts still project earnings per share reaching $40 by the decade's end. That assumes high single-digit annual growth, hardly aggressive for a company that has compounded earnings at 13% annually over the past decade. Apply even a below-market multiple of 16 times to that $40 earnings figure, and you get a $640 stock price. That's roughly 135% upside from current levels.
Meanwhile, the healthcare giant pays an $8.84 annual dividend, yielding about 3.38%. UnitedHealth has raised its dividend for 15 consecutive years, including a 5.2% increase last quarter. You're collecting a sizable yield backed by roughly $30 billion in annual operating cash flow, giving you steady income while you wait for the recovery.
Why the tide will turn for this top healthcare insurer
The recent spike in medical costs is being driven by higher utilization, particularly in Medicare Advantage, and management expects the elevated trend to extend into 2026. While this creates short-term margin pressure, UnitedHealth has begun adjusting premiums for 2026 contracts to reflect the higher cost base.
With about 50 million members across commercial, Medicare, and Medicaid plans, the company has the negotiating leverage to implement rate increases more effectively than smaller competitors. Leadership has signaled a return to earnings growth in 2026 as these pricing adjustments take hold.
The potential $1.6 billion settlement over billing practices, although painful, would resolve a significant legal uncertainty. Once that is behind the company, investor focus can shift back to fundamentals, including Optum's roughly $260 billion in annual revenue. Optum Rx continues to grow at a double-digit rate, while Optum Health works to stabilize performance after a recent decline.
The asymmetric opportunity
Buying UnitedHealth today requires patience for the narrative to shift. The stock could trade lower if medical costs surprise negatively or new regulatory challenges emerge. This isn't a risk-free bet on a quick bounce.
But at this valuation, the market has already priced in an extremely negative scenario. In a market where Nvidia trades at over 50 times earnings, and unprofitable software companies command billion-dollar valuations, finding a profitable industry leader at 11 times earnings is increasingly rare.
UnitedHealth's problems are real but temporary. Its competitive advantages -- scale, data, and vertical integration -- are permanent. That disconnect, plus a rich dividend, is why I'm buying while others are selling.
