We recently 13 Best Stocks to Buy In this article we will take a look at how UnitedHealth Group Incorporated (NYSE:UNH) stands in comparison to other blue chip stocks, according to hedge funds using the latest sentiment data.
Investing in 2024 is very different than investing since the 1950s. This is because today’s investors must sift through thousands of stocks and countless data points and signals to distinguish the good from the bad and make the right investment decisions. In the midst of this hubris, the ability to pick out “quality” stocks becomes important, and there is a wealth of financial literature to help determine what such stocks are.
Typically, stock analysis involves analyzing a company’s financial statements to determine profitability, management strength, cost control, asset utilization, and other metrics. Some of these metrics are also found in financial literature that discusses quality stocks. One such research paper is by researchers affiliated with Research Affiliates. They point out that the metrics that define quality stocks include earnings stability, capital structure, profitability, accounting practices, and investment strategies. Of these, the quality factors that are also related to returns were investment strategy, dividend payout, profitability, and accounting strategy.
The next question to ask is whether blue chip stocks are any different from standard run-of-the-mill stocks in terms of stock price performance. By way of background, the stock market over the past 12 months has been dominated by a few key themes. These are artificial intelligence, inflation, interest rates, and GDP growth. While rising interest rates and inflation are bearish indicators for stock prices, growth and AI have proven to be buoyant for the market when interest rates are at 20-year highs. Thus, over the past year, exchange-traded funds tracking blue chip stocks have risen between 12% and 27%, with the median slightly below the S&P 500’s 23% price increase over the same period. However, there also seems to be an advantage to picking the right blue chip stocks, as the performance cap of 27% is much higher than what the index has realized.
It’s not just ETFs and research that talk about blue chip stocks. One hedge fund that has become very famous for its focus on blue chip stocks is Cliff Anness’ AQR Capital Management. AQR, one of the largest hedge funds in the world, had a 13F investment portfolio worth $58 billion at the end of the first quarter of 2024, according to Insider Monkey research. Nearly a quarter of the portfolio is invested in the technology industry, with the second largest category being services stocks. AQR focuses on stocks that follow the Quality Minus Junk (QMJ) strategy. According to founder Cliff Anness, blue chip stocks are defined by dividends to shareholders, growth, profitability, and sound financial and general management. We recently looked at some of AQR Capital Management’s top stocks. You can check them out in 13 Best Stocks to Buy Now According to Billionaire Cliff Anness.
Before proceeding with the list of the best quality stocks, it is necessary to have an overview of the stock market. Currently, investors are wondering when the first interest rate cut will occur. The latest information in this field came in the form of Commerce Department’s Personal Consumption Expenditures (PCE) data. The data set revealed that the 12-month inflation rate in the United States reached 2.7% in April 2024, which was still higher than the 2% rate recommended by the Fed. Moreover, the data also provided investors with bearish signals. These were evident in the consumer spending figures, which slowed to 2% in Q1 2024 from a robust 3.3% in Q4 2023.
Less spending means less money flowing through the economy, which may help lower prices but could also impact corporate earnings, economic growth and, of course, stock market performance. According to data from the CME Fed Watch Tool, 47% of investors surveyed expect a 25 basis point rate cut in September, with a further 7.5% believing the Fed could be generous and cut rates by up to 50 basis points.
With these details in mind, let’s take a look at some of the top quality stocks that hedge funds are buying.
Our Methodology
To compile a list of the best quality stocks to buy, we ranked the top 30 high quality equity ETFs and picked the ones with the most hedge fund investors in the first quarter of 2024.
By the way, Insider Monkey is an investment website that tracks the movements of corporate insiders and hedge funds. The reason is simple: our research has shown that you can outperform the market by mimicking the top picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small and large stocks each quarter, and has returned 275% since May 2014, beating the benchmark by 150 percentage points (Click here for details).
Medical technician holding instruments in his hands
11. UnitedHealth Group, Inc. (NYSE:UNH)
Number of hedge fund shareholders in Q1 2024: 104
The average one-year price target of 23 analysts for health benefits provider UnitedHealth Group Incorporated (NYSE:UNH) is $569.78, with an average rating of “Strong Buy.” On May 15, analyst Kevin Fischbeck of Banc of America Securities reaffirmed his Buy rating on UnitedHealth Group Incorporated (NYSE:UNH) with a price target of $675.00. He cited the company’s commitment to long-term earnings per share growth of 13-16%, a robust value-based care model, and an adaptive business strategy as factors in his rating. Fischbeck highlighted the company’s effective cost management and ability to maintain target profit margins. He expects UnitedHealth Group to continue to grow with stable profit margins, driven by disciplined pricing and sustainable benefit design.
The company’s shares fell 6%, leading the insurance industry, in late May when it said state reimbursements could fall due to the end of pandemic-era policies.
104 hedge funds tracked by Insider Monkey held shares in UnitedHealth Group Incorporated (NYSE:UNH) as of the first quarter of 2024. Ken Fisher’s Fisher Asset Management is the largest shareholder with a $1.4 billion stake.
Like other large companies, UnitedHealth Group Inc. (NYSE:UNH) trades at a forward price-to-earnings ratio of 17, making it a bargain relative to the market. Furthermore, while revenues have grown 44% over the past four years, the stock has risen 71%, making it vulnerable to downside. Baron Health Care Fund is bullish on UNH stock over the long term and believes the company’s stock has the potential to deliver returns of around 15% per year.
“UnitedHealth Group (NYSE:UNH) is a leading health insurer with four business segments: UnitedHealthcare, OptumHealth, OptumInsight, and OptumRX. Shares fell along with other managed care organizations (MCOs) as Medicare Advantage (MA) patient utilization beat consensus expectations, raising concerns that MCOs may misprice their 2024 bids, resulting in margin pressure. Additionally, the industry faces headwinds from MA reimbursement cuts and star rating changes. Management said the trend toward rising costs is largely temporary and reflected in bids, and 2024 guidance was broadly in line with consensus, but investors adopted a more cautious wait-and-see stance. We believe UnitedHealth should remain a core portfolio holding as it is a vehicle to capitalize on positive demographic, population health, and value-based reimbursement trends. Despite our size, we believe we can grow revenue at the fastest pace among the major MCOs and in line with our long-term EPS target of 13% to 16% annually.”
Overall, UNH ranks #11 among the 13 best quality stocks to buy now. 13 Best Stocks to Buy To see other blue-chip stocks that hedge funds are watching, click here. While we see UNH as a potential investment, we believe AI stock has the potential to deliver higher returns in a shorter time frame. If you’re looking for AI stocks with better prospects than UNH but trading at less than 5x stock price, check out our report. Cheapest AI Stocks.
Read next: Michael Burry is selling these stocks and Jim Cramer is recommending these stocks. Disclosures: None. This article was originally published on Insider Monkey.
