Stocks were little changed after closing a third consecutive losing quarter as investors grappled with recession concerns amid persistent inflation. The Dow fell 6.66% for the quarter, while the S&P 500 and the Nasdaq Composite dropped 5.28% and 4.11%, respectively.
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.
Today we’re focusing on a name offering defensive growth from the desirable healthcare sector with a bevy of built-in advantages over peers from the group.
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 slowdown this year, UNH’s share price is up more than 4%, outperforming its peers and the broader market. The Health Care Select Sector SPDR Fund (XLV) is down nearly 9% YTD, while the S&P 500 has shed more than 17%.
UnitedHealth reported double-digit revenue growth for 2021. Full-year revenue was listed at $287.6 billion, up 11.8% year over year. Full-year EPS increased from $16.03 in 2020 to $18.08. The company expects annual 2022 revenue of between $317 and $320 billion, the median of which implies an 11% upside year over year. UNH forecasts 2022 EPS of $20.20 to $20.50.
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.
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 $1.45 a share, which works out to a yield of 1.10% 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 17.18%. The stock looks like a value at about 27 times earnings, compared to the healthcare industry, where the average P/E is around 37.
Should you invest in UNH right now?
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