Some of Wall Street's Most Prominent Billionaires and Hedge Funds Think They Have Found an Asymmetric Opportunity

Core Viewpoint - UnitedHealth Group has attracted significant interest from prominent hedge funds and billionaires despite facing challenges, indicating a potential asymmetric investment opportunity as they believe the upside outweighs the downside [3][4][16]. Investment Activity - Warren Buffett's Berkshire Hathaway disclosed a position worth over $1.5 billion in UnitedHealth at the end of Q2, reflecting a value investment strategy [4]. - Appaloosa Management increased its stake by 1,300%, from 175,000 shares to 2.45 million shares, valued at over $764 million [6]. - Scion Asset Management purchased $12 million worth of stock and 350,000 long call options, indicating optimism about the stock's future performance [7]. - Lone Pine Capital and Renaissance Technologies also made significant purchases, acquiring over 1.69 million and approximately 1.35 million shares, respectively [8]. Company Challenges - UnitedHealth has faced higher-than-expected medical costs due to sector-wide trends, which are expected to significantly depress earnings, with management guiding for at least $16 adjusted EPS, down from about $27.66 last year [10][11]. - The U.S. Department of Justice is investigating UnitedHealth for potential issues related to Medicare Advantage billing practices, although management is cooperating and confident in their compliance [12]. Financial Position - Despite challenges, UnitedHealth remains the largest health insurer in the U.S. with pricing power and a solid financial footing, with a dividend yield of about 2.9% and a trailing-12-month free cash flow yield close to 9% [13][14]. - The stock trades at about 19 times forward earnings estimates, which is below the average seen over the last two and a half years, suggesting a favorable risk-reward proposition [16][18].