Buy UnitedHealth on Earnings Beat, Then Build Positions on Weakness - TheStreet

UnitedHealth Group (UNH) - Get Report  has now beaten earnings-per-share estimates for 24 consecutive quarters. This provider of managed health care insurance is a component of the Dow Jones Industrial Average survived participating in Obamacare and exiting the Healhcare.gov exchanges. The stock has had a tough 2019 after setting its all-time intraday high of $287.94 on Dec. 4. My call is to buy the stock at the market then add to positions on weakness to its monthly value level for $202.25.

Optum plans offered by UnitedHealth has become the cure for earnings for 2019 and into 2020. Individuals under the age of 65 looking for health insurance from UnitedHealth should keep in mind that coverage will likely be written on three-month intervals. Premiums are revised based upon claims history. A major focus for UnitedHealth is providing supplemental insurance for patients covered by Medicare. This includes prescription drug coverage. To qualify for these plans, you must also be a member of AARP.

Investors watching the Democrats debate Tuesday evening will be listening for the candidates' views about the future of healthcare insurance. The call for "Medicare For All" will be a refrain among the candidates and this uncertainty has been a drag on the stock for most of 2019. UnitedHealth is betting that Medicare coverage will continue as patients reach the age of 65.

UnitedHealth closed Monday at $220.59 down 11.5% year to date and up 6% from its April 17 low of $208.07. The stock is in bear market territory 23.4% below its all-time intraday high of $287.84 set on Dec. 4.

Fundamentally, UnitedHealth is reasonably priced with a P/E ratio of 15.84 and a dividend yield of 1.95%, according to Macrotrends.

UnitedHealth Group is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells this stock?  earn more now.

The Daily Chart for UnitedHealth

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Courtesy of Refinitiv XENITH

The daily chart for UnitedHealth shows that the decline from its all-time intraday high of $287.94 set on Dec. 4 began with a daily negative "key reversal" when the close that day was below the low of Dec. 3. The end of this decline was confirmed by a positive "key reversal" seen on Dec. 26. After setting a low at $213.81, the stock closed that day above the Dec. 24 high. The close of $249.12 on Dec. 31 was input to my proprietary analytics and its annual pivot is $247.82. This level has been a magnet all year with numerous tests between Jan. 14 and Aug. 19. The mid-year close of $244.01 was an input to my analytics and its semiannual risky level for the second half of 2019 is $279.61. The close of $217.32 on Sept. 30 was an input to my analytics and its fourth-quarter risky level is $275.45 with a monthly value level for October at $202.25.

The Weekly Chart for UnitedHealth

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Courtesy of Refinitiv XENITH

The weekly chart for UnitedHealth will end this week positive, with the stock above its five-week modified moving average of $230.55 and above its 200-week simple moving average or "reversion to the mean" at $200.87. The 12x3x3 weekly slow stochastic reading is projected to end this week at 22.12, rising above the oversold threshold of 20.00.

Trading Strategy: Buy at the market and add to positions on weakness to the monthly value level at $202.25. Reduce holdings on strength to its annual pivot at $247.82.

How to use my value levels and risky levels:

Value levels and risky levels are based upon the last nine monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31, 2018. The original annual level remains in play.

The close at the end of June 2019 established new monthly, quarterly and semiannual levels. The semiannual level for the second half of 2019 remains in play.

The quarterly level changes after the end of each quarter so the close on Sept. 30 established the level for the fourth quarter. The close on Sept. 30 also established the monthly level for October as monthly levels change at the end of each month.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.

To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.