I never like speaking in Las Vegas. It’s not the kind of town for someone who wakes up at sunrise, yearning for something to do.
In 2010, I was invited there to talk about healthcare stocks. Obamacare had just kicked off, and I was pounding the table about what it would mean for the big insurers and their soon-to-be-rich shareholders.
History shows that when the government forces a move, big money is about to be made.
In front of several hundred folks, I focused on one ticker… UNH. It’s the symbol for UnitedHealth Group – one of the biggest recipients of government money on the planet.
If the folks in that room followed my advice, they did very well.
Shares of the company traded for about $30 when I took the stage. They hit $500 a share last year.
That’s a roughly 1,550% gain over 12 years.
That’s BIG money. It’s the sort of money that comes only when the government picks the winners and the losers.
But the state giveth and she taketh away.
Shares of UnitedHealth dropped hard in early February, falling 5%. It was one of the largest daily moves in the stock’s history… proving the stable might of this $450 billion insurer.
The stock fell after Uncle Sam tightened his purse strings. Medicare rates for next year came in lower than expected… rising by just 2.09%.
It’s a full percentage point lower than the 3.3% average increase we’ve seen over the past five years.
Now… this is what others will fail to see.
Let’s think deeper about what’s going on here. UnitedHealth enters private contracts with state and federal governments to provide insurance for folks eligible for Medicare and Medicaid. Insurers often bid on entire states or regions within states.
Once the contract is secured… they’ve got a captive audience. No advertising, no individual billing, no churn. The government pays the premiums to the insurer and reimburses for many of the services.
In other words, the 3.3% growth Medicare and Medicaid have averaged over the last half-decade is some of the best and safest income in all of corporate America.
And don’t think of it as merely a 2% or 3% stream of interest on a fixed investment. That money comes on top of other incentives and increases in population.
In 2021, for instance, the Medicare and Medicaid audience grew by nearly 900,000 people (thanks to an increase in the number of old and poor folks)… again, without using a single marketing spot to attract those folks.
It’s a captive audience – forced growth.
The whole thing is a racket, to be sure. Docs and industry experts are already saying that the lower 2% growth in payouts next year will lead to cutbacks for patients (not shareholders). But there are few more reliable gold mines on Wall Street.
Shares of UnitedHealth made a rare dip.