The Big Money Says to Sell UnitedHealth Group

One of the great maxims of traders and Wall Street pros is to follow the "smart money."

I'm not much for the thesis that institutional shoppers tend to make smarter investing decisions, but many of you who've read my ruminations on insider buying say you'd also like to know how the Big Money is betting. Your wish is my command.

Next up: UnitedHealth Group (NYSE: UNH). Are institutions bullish or bearish when it comes to this national health insurer?

Foolish facts

Data current as of Nov. 30.

UnitedHealth insures my little editorial services company, so I know it well. And I'm not much of a fan. Lately, our carrier has been sticking us with some very big bills and pushing back on needed treatments.

As a patient, I'm frustrated. As an investor, I have to admit the stonewalling probably helps UnitedHealth's "float," a pool of cash for investments and unpaid claims and expenses. Having cash on hand allows UnitedHeath to generate ever-increasing amounts of investment income.

Profits are never guaranteed, of course. But over the past five years, UnitedHealth has increased earnings by 9.5% annually. Normalized net income is up 22% over the last 12 months. In comments to investors made earlier today, executives predicted "meaningful organic earnings growth" for 2012, Dow Jones Newswires reports. Fools are expecting nothing less.

"My analysis shows this stock is undervalued. [Price-to-earnings] is 8.5-ish. Dividend growth in the last five years has been very good. Debt is well under control. [Price-to-sales] is around 0.4, which is less than half the five year average (though in line with the industry right now). PEG ratio is 0.9. Earnings yield is over 11! Currently at 10-year lows in [price-to-book], P/S, [price-to-cash flow], P/E. Future expectations are too low," wrote Foolish investor dumberthanafool in September.

Institutional ownership history

Source: Capital IQ, a division of Standard & Poor's.
*Indicates the number of shares owned.

As a group, institutional investors also seem to think the stock is too cheap. They're net buyers over the past year and past three years.

But not the top five owners; four of them have sold since December. BlackRock, Fidelity, and Capital Research and Management have shed roughly 33 million shares of UnitedHealth this year.

Competitor and peer checkup

Source: Capital IQ. Data current as of Nov. 30.

We can't know exactly why they're selling, and unfortunately, this table may not offer much in the way of clues. UnitedHealth's ownership profile is about on par with all of its insurance industry peers, though MedcoHealth leaves the most headroom for Big Money buyers.

My guess is UnitedHealth's Big Money sellers are less worried about the business and more worried about the still-unknown impact of implementing health care legislation. Institutions move into and out of positions too fast to accept uncertainty. So while UnitedHealth's numbers may look good now, worried investors may need proof the all's well before buying back into the stock.

Now it's your turn to weigh in. Do you think the institutions are wrong about UnitedHealth Group? Let us know what you think using the comments box below. You can also recommend other stocks for me to evaluate by sending me an email, or replying to me on Twitter.

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