Warren Buffett’s investment company, Berkshire Hathaway, is sitting on about $340bn in cash right now. So we could potentially see the legendary stock market investor make a major trade before he retires at the end of the year.
Now, there’s no guarantee he’ll put this cash to work, of course. But here’s a look at an S&P 500 stock that I believe fits the Buffett mould.
This S&P 500 stock has tanked
The stock I want to highlight today is UnitedHealth (NYSE: UNH), the largest health insurance company in the US (and the world).
Listed on the New York Stock Exchange, it currently trades for $241. That’s more than 50% below the level it was trading at at the start of the year.
A high-quality company on sale
So why do I think Buffett should be interested in this stock? Well, there are a few reasons.
For a start, we know that Buffett loves insurance companies (they’re very much in his ‘circle of competence’). Over the decades, he’s invested in many different insurers including GEICO, General Re, Chubb, and Alleghany. It’s worth noting here that he has actually owned UnitedHealth stock in the past (for about three years between 2006 and 2009). So I imagine he knows this company very well.
Secondly, we know he likes to invest in high-quality businesses that are out of favour and offer value. That’s what we have here. Over the long term, this insurance company has generated a huge amount of wealth for investors, thanks to its high return on equity (five-year average of 24%) and strong balance sheet. However, this year, it has faced some challenges and its share price has fallen significantly, leaving the stock on a price-to-earnings (P/E) ratio of just 13.5.
Third, he could buy a significant stake in the company. Currently, UnitedHealth has a market cap of $218bn. That’s less than the value of the cash on Berkshire’s books. So, he could buy the whole company if he wanted to and become the owner of the business (Buffett likes to think as a business owner and not a stock market speculator).
Short-term challenges
It’s worth pointing out that Buffett hasn’t given any indication of being interested in buying it and I’m only speculating. Plus, he may be put off by the challenges the insurance company is facing right now. This year, it has lowered its 2025 earnings guidance on several occasions due to higher demand for healthcare, increased medical costs, suboptimal insurance pricing, and some other issues. These issues could persist in the near term. For the stock to rebound, management will have to prove that it’s on top of them.
Given this company’s long-term track record and current valuation, however, I wouldn’t be surprised if we suddenly heard that Buffett was to grab a slice of this business in the months ahead. I see a quality company trading at a reasonable price and I think the stock is worth considering today.
I’ll stress that I’m not saying he will buy the stock. But I do believe it has a lot of the things he looks for in an investment.
