United Healthcare and Cigna: Why They Belong in Your Portfolio Amid Turmoil
Heathly returns with healthcare insurers
On October 31, I issued a bullish opinion on Cigna (CI), which was at ~$313. It is currently at $282. What has happened and what to do?
This is from my bullish post about CI: “The stock is very volatile and while it is inexpensive now, it does not mean it cannot become even cheaper. Normally, drops happen in response to politically driven changes in healthcare regulations and policies.” Subsequent events have confirmed my hard-learned experience.
I will review CI evolution in tandem with United Healthcare (UNH) because of several reasons. First, they belong to the same industry and I hold both of them. Second, they have moved in sync. Third, I will touch upon some differences between these bets.
Developments
On Dec 4, UNH exec Brian Thompson was pre-planned killed right before the company’s Investor Day. It quickly became evident it was a kind of crusade against the US health insurance industry. I will quote from CBS:
“Witty {UNH CEO] said that he understood people's frustrations with the health care system. Americans pay more than ever for health insurance, even as insurers are rejecting more than 1 in 5 claims. Most adults in the U.S. say they worry about their ability to pay for health care services or unexpected medical bills, according to a 2024 KFF survey. The New York Police Department said that there is no indication Mangione was a client of the company, but officials believe UHC may have been targeted due to its status as the largest health insurer in the U.S.
Since Thompson's murder, some have used social media to vent about their experiences with health insurance companies, and others have even celebrated Thompson's accused killer, Luigi Mangione.”
On Dec 11, a bipartisan group of legislators introduced a bill in both the Senate and the House to separate pharmacies from PBMs (Pharmacy Benefit Managers). The bill is against CI, UNH, and CVS Health (CVS). These companies operate the three biggest PBMs in the US and also house pharmacy operations within their corporate structures. I am unsure whether the killing influenced the timing of the bill's introduction, but I would not rule it out.
We will analyze the underlying reasons for and consequences of these developments for investors but will start with the stock charts for both companies copied from Seeking Alpha.
I added two arrows to the chart. Both stocks began declining on December 5, and the downturn persisted as the motives behind the killing became clearer. The second drop was in response to the bill.