Picture supply: The Motley Idiot
Warren Buffett’s funding firm, Berkshire Hathaway, is sitting on about $340bn in money proper now. So we might probably see the legendary inventory market investor make a serious commerce earlier than he retires on the finish of the 12 months.
Now, there’s no assure he’ll put this money to work, in fact. However right here’s a take a look at an S&P 500 inventory that I imagine suits the Buffett mould.
This S&P 500 inventory has tanked
The inventory I wish to spotlight as we speak is UnitedHealth (NYSE: UNH), the biggest medical health insurance firm within the US (and the world).
Listed on the New York Inventory Trade, it at the moment trades for $241. That’s greater than 50% beneath the extent it was buying and selling at at the beginning of the 12 months.
A high-quality firm on sale
So why do I feel Buffett ought to be on this inventory? Nicely, there are a number of causes.
For a begin, we all know that Buffett loves insurance coverage firms (they’re very a lot in his ‘circle of competence’). Over the many years, he’s invested in many alternative insurers together with GEICO, Basic Re, Chubb, and Alleghany. It’s price noting right here that he has truly owned UnitedHealth inventory previously (for about three years between 2006 and 2009). So I think about he is aware of this firm very properly.
Secondly, we all know he likes to spend money on high-quality companies which might be out of favour and supply worth. That’s what we’ve right here. Over the long run, this insurance coverage firm has generated an enormous quantity of wealth for traders, due to its excessive return on fairness (five-year common of 24%) and powerful steadiness sheet. Nonetheless, this 12 months, it has confronted some challenges and its share value has fallen considerably, leaving the inventory on a price-to-earnings (P/E) ratio of simply 13.5.
Third, he might purchase a big stake within the firm. At the moment, UnitedHealth has a market cap of $218bn. That’s lower than the worth of the money on Berkshire’s books. So, he might purchase the entire firm if he needed to and change into the proprietor of the enterprise (Buffett likes to assume as a enterprise proprietor and never a inventory market speculator).
Brief-term challenges
It’s price stating that Buffett hasn’t given any indication of being inquisitive about shopping for it and I’m solely speculating. Plus, he could also be delay by the challenges the insurance coverage firm is dealing with proper now. This 12 months, it has lowered its 2025 earnings steering on a number of events on account of greater demand for healthcare, elevated medical prices, suboptimal insurance coverage pricing, and another points. These points might persist within the close to time period. For the inventory to rebound, administration should show that it’s on high of them.
Given this firm’s long-term observe file and present valuation, nevertheless, I wouldn’t be shocked if we all of the sudden heard that Buffett was to seize a slice of this enterprise within the months forward. I see a top quality firm buying and selling at an affordable value and I feel the inventory is price contemplating as we speak.
I’ll stress that I’m not saying he’ll purchase the inventory. However I do imagine it has numerous the issues he appears to be like for in an funding.
