Investors love to have a look at what stocks billionaires are buying and selling. And the reason is simple. Billionaires generally are experts, having demonstrated their ability over time to pick out the right stocks and turn investments into wealth -- for themselves and for clients. The idea is that by following some of their moves, we, too, may see the value of our portfolios take off.
Of course, not every move will be right for us. A particular billionaire, for example, may favor a type of stock that you're not comfortable with -- in that case, you should remain on the sidelines and look for other investing ideas. But if a billionaire's selection fits into your investment strategy, it may be a good idea to hop on board.
Billionaires don't all agree on the same stocks at the same moment, but in the recent quarter, several -- from investing legend Warren Buffett to David Tepper of Appaloosa Management and Michael Platt of BlueCrest Capital Management have piled into one particular beaten-down stock that today looks pretty cheap. This stock also was a recent addition to the portfolio of Michael Burry of "The Big Short" fame. One quick thing to note: Burry isn't a billionaire, but he's raked in millions on many wise moves over the years, including his bet against the U.S. housing market in the early 2000s.
Now, does this recent buy represent a once-in-a-decade buying opportunity for these investing giants and for you too? Let's find out.
Image source: Getty Images.
Managing more than $100 million each
These investors, each managing more than $100 million in U.S. securities, must report their trades on a quarterly basis to the Securities and Exchange Commission on form 13F. This is a moment the rest of us investors look forward to as it offers us a view of their latest moves. And in the second quarter, the down-but-potentially not-out company that attracted many top investors is UnitedHealth Group (UNH 3.37%).
Here's a look at their moves:
- Warren Buffett opened a position in UnitedHealth, buying 5,039,564 shares. The position is small, representing 0.6% of the Berkshire Hathaway portfolio.
- David Tepper increased his position in UnitedHealth by 1,300% and now owns 2,450,000 shares. That's more than 11% of his portfolio.
- Michael Platt opened a position in the stock, purchasing 137,591 shares. The stock makes up 1.6% of his portfolio.
- Michael Burry opened a position in UnitedHealth, buying 20,000 shares for Scion Asset Management. Burry also bought 350,000 call options on UnitedHealth, options considered bullish as they bet on a rise in the stock price. The stock and call options account for more than 19% of Burry's portfolio.
A potential recovery story?
So, it's clear that many of today's top investors are confident about UnitedHealth's prospects. It's true that the health insurer has encountered headwinds in recent times, from an ongoing Department of Justice probe into its Medicare business to higher-than-expected costs. In the recent quarter, UnitedHealth said it underestimated the rising costs of healthcare along with the use of services by patients and doctors. All of this contributed to its disappointing quarter. And the stock has been in the doldrums, falling more than 40% over the past year.
NYSE: UNH
Key Data Points
But it's important to keep in mind a couple of things. First, UnitedHealth is the biggest U.S. health insurer, and along with its UnitedHealthcare insurance business also operates services unit Optum. This leadership and structure represent a significant moat, or competitive advantage -- meaning it would be difficult for others to quickly take market share away from the company.
Second, UnitedHealth is aware of today's challenges and is actively making moves to address them, from cutting certain plans that are too costly to using AI to streamline its operations. Recovery may not happen at the speed of light, but there's reason to be optimistic that, progressively, UnitedHealth's earnings will improve.
"While we face challenges across our lines of business, we believe we can resolve these issues and recapture our earnings growth potential," UnitedHealthcare chief Tim Noel said during the recent earnings report.
Meanwhile, the stock is trading at a trailing 12-month P/E ratio of about 14, around its lowest in five years. This looks almost dirt cheap considering the company's dominance in the market, strong moat, and focus on recovery. I wouldn't expect the stock to remain this cheap once UnitedHealth's efforts start bearing fruit and earnings figures improve -- and that's why I think buying now could be a once-in-a-decade opportunity for billionaires and for you.
