Daily Stock Pick: July 12th, 2022

Stocks ticked lower this morning in early trading as investors braced themselves for what many believe will be a difficult earnings season as companies try to deal with greater inflationary pressures and the increasing likelihood of a recession.  

Traditionally one of the most stable and recession-resistant sectors, everyone needs healthcare at some point regardless of income status. “The defensive aspects of the sector, while not fully appreciated at times over the past few years, is beginning to kick-in in a rather meaningful way,” said Jared Holz, a healthcare strategist at Oppenheimer.    

A name offering defensive growth from the desirable sector currently is UnitedHealth Group (UNH). As the most significant health insurance company by market cap and market share, UNH’s size gives it built-in advantages over peers in the group.   

Despite the market sell-off this year, UNH’s share price is up 3%, outperforming its peers and the broader market. The Health Care Select Sector SPDR Fund (XLV) is down 6.5% YTD, while the S&P 500 is down nearly 20%.  

UnitedHealth reported double-digit revenue growth for 2021. Full-year revenue was listed at $287.6 billion, up 11.8% yearly. Full-year EPS increased from $16.03 in 2020 to $18.08. Momentum should be supported in the coming years thanks to UNH’s strong market position and attractive core business. Its international business expansion provides substantial diversification benefits and shields against the impact of tightening U.S. regulations while allowing the Dow giant to tap into the $8.3 trillion spent annually on global healthcare. The company expects annual 2022 revenue of between $317 and $320 billion, the median of which implies an 11% upside year over year.  

UnitedHealth has exceeded consensus expectations when it comes to both earnings and revenue for the past four consecutive quarters. Ahead of the July 15th call, expectations for UNH’s Q2 earnings results have increased 15% over the past month. Investors will also look for the company to raise its third-quarter and full-year outlook. UnitedHealth has a solid history of rewarding investors with a steady paycheck. The company went to a quarterly dividend in 2010 and, since then, has increased its dividend every year. That includes a 16% bump last year to $1.65 a share, which works out to a yield of 1.28% at its current price. UNH’s payout has increased 31% over the past five years, and the stock has a 5-year annualized dividend growth rate of 19%. The stock looks like a value at about 28 times earnings, compared to the healthcare industry, where the average P/E is 37.

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