The Basics of UnitedHealth

Worldwide Invest Better Day 9/25/2012
Worldwide Invest Better Day 9/25/2012

For well-nigh 20 years now, the Motley Fool has been here to help you invest better and smarter, using spot-on analysis and a razor-sharp wit. To celebrate Worldwide Invest Better Day on September 25, we are taking some time to get back to the basics -- of investing, that is. In that spirit, I have rounded up some sweet financial sector stocks that have been showing some real sparkle and promise lately.

Without further ado, let me introduce you to the focus of this particular article: Robust health insurer UnitedHealth Group (NYS: UNH) .

Nearly 40 years of growth
UnitedHealth was created in 1974 by a group of medical doctors. One of the earliest health maintenance organizations, Charter Med, as it was called, was reorganized three years later into United HealthCare Corporation. Another reorganization occurred in 1998, whereby the company became UnitedHealth Group -- with six distinct, though interlinked, business subsidiaries.

This diversification helped to make the company what it is today, a megainsurer with a market cap of over $58 billion. It is precisely this diversified business model that Fitch Ratings recently noted has given this company a leg up in the volatile health insurance sector -- despite the uncertainty of health care reform.

The insurer turned in some nice numbers in its recent Q2 report, showing an 8% increase in revenue year over year, as well as a 5.5% net profit boost. Briefly, the company's stock fell after peers WellPoint (NYS: WLP) and Humana (NYS: HUM) produced less sparkly quarterly reports. Wellpoint's earnings fell more than 8%, and the company's leadership and management has become a concern. Humana has its own set of problems, having recently missed analysts' estimates on all counts, and redirecting its guidance downward for the rest of the year.

Very recently, the insurer reached another milestone when it was named to the Dow Jones Industrial Average, replacing Kraft Foods. UnitedHealth is the first health insurance company to join the Dow and has been seen as an indication of the sector's growing importance.

Health reform can only drive profits higher
While all health insurers should benefit from Obamacare, UnitedHealth is poised to take advantage with its from varied revenue sources and savvy management. Medicare enrollment numbers have been steadily rising and should jump another 11% next year -- particularly now that health care reform has been decreed the law of the land by the courts. The prognosis for UnitedHealth looks very optimistic indeed.

I'll be covering other great stocks over the next couple of weeks, as will my fellow Fools. Check out our special website set up especially for this investing extravaganza at There will be lots of great articles posted there through September 25, all with a particularly informative take on various facets of investing. We'd love to have you on board, too -- so click through to the site and prepare to be informed and amused by the never-dull world of investing!

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Fool contributorAmanda Alixowns no shares in the companies mentioned above.Motley Fool newsletter serviceshave recommended buying shares of WellPoint and UnitedHealth Group.Motley Fool newsletter serviceshave recommended creating a diagonal call position in UnitedHealth Group. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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Originally published