When They Go Low, We Go High. Why UnitedHealth Group is a Defensive Beast.

Photo by Owen Beard on Unsplash

Strategy

You know what they say about health insurance, you can’t afford it…but you also can’t afford not to have it. Strategy is pretty simple, $UNH is a defensive beast security that will continue to generate cash flows regardless of economic conditions. Because, at the end of the day, you need health insurance in the US. Period. Heck, even Obama made sure to charge you a fee for not having health insurance and it’s part of tax filings. No way of getting around paying for it.

With that said, let’s do simple math. You have a massive government contract has almost 30% market share of Medicare Advantage along with 20% market share of Medicare Part D Plans and 15% market share of commercial plans. What do you have? A defensible cash rich business with little to threat from competition. It’s about as stable as you can imagine. And then top it off with growth driving from OptumRx (this is the PBM division, the actual health insurance division is UnitedHealthcare — both in which are subsidiaries) and it almost feels like a bit of a monopoly.

The coverage is adequate, a bit pretentious with added bonus of Peloton app subscription and Apple Fitness Plus subscription as free add-ons but nonetheless effective retaining tools. I honestly see nothing but stability with this security.

So why do I not have the highest conviction relative to my top 3?

High regulatory scrutiny along with questionable business tactics.

They are, in my opinion, at high risk of regulation because PBMs are scumbag companies profiting off discounts provided by pharmaceutical industry for consumers. It’s a long story but TLDR: PBMs have access to these discounts that should be 100% passed on to consumers but instead they skim off say 10–20% of the discount and call it “managing healthcare”. But in reality they’re scumbags who take advantage of people who can’t afford their medications. A good example of this is GoodRx. I hate that company.

The other issue I have is the operational foundation of insurance. Again, I could go on and on about my ethical issues but TLDR: insurance companies impose PA’s (Prior Authorizations) in order to restrict and prevent providing adequate coverage to consumers. This is because they collect premiums monthly and invest it to yield a relatively meager amount (say 3–5%) but when it’s the 100’s of billion, then all of a sudden that translate to billions in profit. Now this is not new to insurances as this is the foundation in which insurance is built upon, but when you consider health insurance, then they would prefer to not give out proper coverage in order to yield greater profit.

Hence, the creation of Prior Authorizations and difficulty in having them pay for adequate coverage. I think its unethical and wrong but it doesn’t mean I won’t make money off of it. In reality, I could live with the regulatory scrutiny, but ethics aside, I’m conflicted. I mean, I’m still gonna make money off of their unethical behavior but I also have my limits. Bottom-line, its why it’s a second tier holding for me. I really like the business and security along with a healthy projected 20% CAGR (for me personally based on my projections) but it comes with ethical issues.

Source: https://www.youtube.com/watch?v=AQl7d2xIupk

Disclosure: I have no affiliate or sponsorship with Morgan Stanley’s Power E*TRADE App. I just really love using it.

Portfolio Recap

20% BlackRock → Strategy Here

20% Costco → Strategy Here

20% Builders FirstSource → Strategy Here

15% UnitedHealth Group → Strategy Here

15% Palo Alto Networks → Strategy Upcoming

5% Tuttle Capital Short Innovation ETF → Strategy Upcoming

5% ARK Innovation ETF → Strategy Upcoming

Big Picture

Deployed $100,000 in my Power E*TRADE account to above allocations. $100.00 in fees and $12.00 remain in cash.

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DISCLAIMER

THIS CONTENT IS NOT FINANCIAL ADVICE! DO NOT COPY MY PORTFOLIO! DO NOT BUY MY STOCK PICKS! I AM A RANDOM PERSON ON THE INTERNET! I COULD LOSE ALL MY MONEY AND SO COULD YOU, SO DO YOUR OWN DUE DILIGENCE! YOU ARE RESPONSIBLE FOR YOUR OWN FINANCIAL DECISIONS SO DON’T BE AN IDIOT.

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Managing a Personal $100K Wannabe Hedge Fund Portfolio and I Have No Idea What I’m Doing.

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Analyst Peter

Analyst Peter

Managing a Personal $100K Wannabe Hedge Fund Portfolio and I Have No Idea What I’m Doing.

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