Some of Wall Street’s most prominent investors piled into UnitedHealth (UNH) stock in the second quarter, even as the health insurer was in a deep sell-off tied to an alleged billing fraud scandal.
Warren Buffett’s Berkshire Hathaway disclosed it had purchased more than 5 million UNH shares worth roughly $1.6 billion last quarter.
David Tepper, the billionaire founder of Appaloosa Management, boosted his firm’s holdings by 2.3 million shares, bringing the total stake to about $764 million.
The Medallion Fund — launched by the late billionaire Jim Simons — also doubled its UNH position last quarter.
These disclosures followed news that Chris Davis’s Davis Selected Advisers had added more than 1 million UNH shares during the same period. Like Buffett, Davis is a value investor and a member of Berkshire Hathaway’s board.
After the news broke, UNH stock rose 12% on Friday to close at $304.
While the stock still has ground to cover before staging a full recovery, analysts are increasingly optimistic that UNH could be one of the market’s strongest value plays, given the company’s strong underlying business.
That strength showed in the company’s second-quarter revenue of $111.62 billion, topping expectations and up 12.9% from a year earlier.
V-shape rebound ahead?
On Aug. 7, InvestorsObserver noted that UnitedHealth might be the most oversold stock on Wall Street, pointing to its dominant share of the U.S. health insurance market and the sustained growth of its Optum division.
However, those strengths were eclipsed by recent headlines surrounding the Medicare billing scandal.
Widely-followed analyst Mike Investing argues that the involvement of Wall Street’s heavyweight investors signals the “V-shaped reversal” may only be beginning. The analyst didn’t rule out a return to $600 a share for UNH next year.
While that would represent a doubling from current levels, it would merely return UNH to where it traded last November.
Oguz Erkan, author of Capitalist Letters, noted via Dataroma that UNH is now the tenth most widely held stock among “super investors” who have long track records of outsized returns.
“This will prove a generational buying opportunity,” he said.
Adding to the optimism, Friday’s rally pushed UNH above its 50-day moving average for the first time since April, which is a technical signal that selling is slowing and momentum may be turning.
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