UnitedHealth dramatic collapse have rattled markets.

This collapse has been driven by multiple factors, including a reported Department of Justice (DOJ) criminal investigation into potential Medicare fraud, higher-than-expected medical costs, a historic cyberattack, and public backlash following the murder of UnitedHealthcare CEO Brian Thompson in December 2024. Additionally, the company suspended its 2025 financial guidance and announced a CEO change, with Stephen Hemsley replacing Andrew Witty, further shaking investor confidence.

Is It Time to Bottom Fish?

"Bottom fishing" involves buying stocks at perceived lows, anticipating a recovery. Here are key considerations for UNH:

Valuation: UNH is trading at a low valuation of approximately 10.7 times trailing earnings, which is attractive compared to its historical averages. Analysts, such as those from Mizuho, note that the stock’s 28% decline over three days in May 2025 makes the risk/reward profile compelling, trading at 12.5x their adjusted 2025 EPS estimates. The average analyst price target is $404.04 to $450.09, suggesting a potential upside of 27.9% to 42.4% from the current price of $315.89.

Challenges: The DOJ’s reported criminal probe into Medicare fraud, alongside existing civil investigations, poses significant risks, including potential financial penalties, legal costs, and reputational damage. UnitedHealth has denied receiving formal notice of a criminal probe, but uncertainty persists. Additionally, rising medical costs, particularly for Medicare Advantage beneficiaries, and the fallout from the CEO assassination continue to pressure the stock. The company has indicated that a turnaround is unlikely before 2026.

Technical Indicators: UNH is considered the most oversold S&P 500 stock following its recent sell-off, which could signal a potential rebound if negative catalysts subside. The stock surged 6.4% on May 16, 2025, after insider buying activity, and gained about 5% in pre-market trading on May 19, 2025, indicating some dip-buying interest.

Dividend Stability: Despite challenges, UNH’s dividend (currently $8.40 per share annually) appears sustainable, even if 2025 earnings shrink significantly, providing a potential buffer for investors.

Insider Buying Activity

Recent insider purchases suggest confidence in UNH’s long-term prospects despite the current turmoil:

Stephen Hemsley (CEO): On May 16, 2025, Hemsley acquired $25 million worth of UNH shares at an average price of $288.57, boosting his ownership to 602,773 shares, valued at approximately $173.7 million.

John F. Rex (President and CFO): Purchased 17,175 shares on May 16, 2025, for about $5 million at $291.12 per share.

Kristen Gil (Director): Bought 3,700 shares on May 15, 2025, at $271.17 per share, investing $1 million.

Timothy Patrick Flynn (Director): Acquired 1,533 shares on May 14, 2025, at $320.80 per share, totaling $491,786.

John Noseworthy (Director): Purchased shares worth approximately $93,600 in a separate transaction.

Total Insider Buying: Insiders collectively purchased over $31.5 million in shares since May 14, 2025, signaling a "Very Positive" insider confidence level according to TipRanks’ Insider Trading Activity Tool.

These purchases occurred after the stock’s steep decline, suggesting insiders view the current price as undervalued and are capitalizing on the dip.

Risks and Considerations

Regulatory and Legal Risks: The DOJ probe, even if not formally confirmed, could lead to significant penalties or operational changes, particularly if fraud is substantiated. Ongoing antitrust scrutiny and investor lawsuits related to the CEO assassination add further uncertainty.

Market Sentiment: Public backlash and negative sentiment toward UnitedHealthcare’s claim denial practices could continue to weigh on the stock, especially in a politically charged environment.

Earnings Uncertainty: The suspension of 2025 guidance and concerns over earnings quality (e.g., Raymond James’ downward revision of EPS estimates) indicate near-term volatility.

Market Impact: UNH’s decline has significantly dragged down the Dow Jones Industrial Average, given its high weighting, which could amplify selling pressure if broader market sentiment sours.

Recommendation

Bottom fishing UNH could be appealing for long-term investors given its low valuation, insider buying, and strong analyst support. The recent insider purchases, particularly by the CEO and CFO, signal confidence in a recovery, potentially by 2026 as the company has projected. However, the DOJ probe, high medical costs, and reputational challenges pose significant near-term risks, suggesting caution for short-term traders. A prudent approach might involve waiting for confirmation of a price bottom (e.g., using technical indicators like stabilization above the 200-month moving average or reduced volatility) or employing a dollar-cost averaging strategy to mitigate risk.