Is It Safe? UnitedHealth Gets Interesting

"Is It Safe?" looks at a company's risk-and-reward potential. Find out if your stocks are safe at 4 a.m. on Tuesdays and Thursdays.

UnitedHealth Group(UNH Quote) drew a line under the executive options lawsuit with a settlement last week. Following the Ingenix patient reimbursement rate scandal, the company can now focus on the future.

UnitedHealth's 5% share-price decline so far this year contrasts with WellCare Health Plans'(WCG Quote) 37% gain. Other insurers doing better include Molina Healthcare(MOH Quote), up 36%, and Cigna(CI Quote), up 50%.

The problem with health care is that the industry hardly excites short-term investors. Many companies have a beta of less than 1, meaning their shares usually can't beat the broader stock market. Cigna and Assurant(AIZ Quote) are exceptions, at 1.12 and 1.19, respectively. UnitedHealth's beta of 0.9 and one-week short interest ratio of 1.01 suggests stability and a lack of investment opportunity for those with a risk appetite. How safe an investment is it?

The stock is priced 16% less than analysts' 2009 target of $29.94, has a low price-to-earnings ratio of 7.8 and has experienced lower-than-average trading volume. Contrast those potential reasons to buy the company's stock with a party killer: a price-to-book value of 139%. That's considerably higher than Humana's(HUM Quote) 92% of book value, with a P/E of 6.6 and a beta of 0.76.

Insurers with significant Medicare Advantage books are exposed to government plans for health care reform. From an investor's standpoint, UnitedHealth's 8% stock-price increase over the past year was only bettered by those of WellPoint(WLP Quote), Centene(CNC Quote) and Amerigroup(AGP Quote).

UnitedHealth's second-quarter results will be telling. Revenue was strong through March, even as membership dropped slightly from the end of 2008, and cash and equivalents started to grow, rising 6% to $7.9 billion. Perhaps more importantly, policy reserves increased nearly 5% to $15.6 billion.