Up 37% Since August, Is It Safe to Buy UnitedHealth Group Stock Again?

For years, UnitedHealth Group (NYSE: UNH) has been one of the best growth stocks to own on the New York Stock Exchange. A leading health insurance company, it generated solid and continuous growth, and many investors viewed it as a safe stock to own and also a reliable dividend investment.

However, it's been facing some considerable challenges of late, including rising costs and a Department of Justice investigation into its billing practices. And over the past 12 months, it has lost nearly half of its value. But since August, it has been rallying and showing signs of stability. Could this mean that it's safe to buy the healthcare stock again?

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Why UnitedHealth stock started to rally in August

Since August, UnitedHealth stock has climbed 37% in value. The rally wasn't triggered by a strong earnings report or guidance upgrade. Instead, it was news that Warren Buffett's Berkshire Hathaway was investing in it that gave the healthcare stock a huge boost. Buffett is a longtime value investor who is highly familiar with the insurance industry. And when Berkshire invests in a company, it often inspires many other investors to follow suit.

Berkshire's move to open a position may have been what alerted investors broadly to the deep value the stock possessed at the time -- it was trading at a price-to-earnings (P/E) multiple of around 10. Even in the wake of its rally since then, it's arguably still not that expensive, with its P/E multiple now at 17.

UNH PE Ratio data by YCharts.

The company is focused on improving its financials

To its credit, UnitedHealth has been making efforts to improve its financials and outlook; the stock's rebound may not all be due to the Berkshire halo. UnitedHealth has been exiting Medicare Advantage markets across the country as part of a broader effort to improve its profitability. While that is a controversial move, Bobby Hunter, who is in charge of running government programs for UnitedHealth, says that government funding cuts, rising costs, and higher utilization rates have resulted in "headwinds that no organization can ignore."

UnitedHealth reported its third-quarter results in October, and its consolidated revenue rose 12% year over year to $113.2 billion. Although its net margin was disappointing at just 2.1%, the company did boost its guidance for the year. It now projects full-year earnings per share of at least $14.90, up from an earlier projection of at least $14.65. That's not a huge increase, but it's a step in the right direction.

Is UnitedHealth stock worth buying today?

UnitedHealth is still facing considerable challenges ahead, and it's important to know that before buying the stock. It may still be a bumpy road ahead for the company, depending on what happens with the investigations into its billing practices. And the recent rally is by no means a sign that the company has overcome its obstacles, or that it's back to being the "safe" stock that it was a few years ago.

Fundamentally, there are some big question marks about the company's near-term prospects. But in the long run, this can still be a good investment to hang on to, especially if you buy it at its current valuation. UnitedHealth is a pillar of the healthcare sector, and as it gets its costs under control and utilization rates come down, the stock could end up rising even more. But given the lack of clarity about how long those things might take, this is a stock that you'll need to be patient with.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends UnitedHealth Group. The Motley Fool has a disclosure policy.