Talk about bad timing.
John Twele, portfolio team manager of
First American Large Cap Value fund, went on
Wednesday morning and when asked about a great value play offered up
It seemed like a safe bet: Twele figured that this Minnetonka, Minn.-based HMO was due for an uptick after falling from 65 to 52 over the past month, especially with it reporting earnings Thursday. "I think
its earnings will confirm that the company is a cost-cutting one, and its management is very solid," Twele told
anchor Kevin McCullough, according to
Video Monitoring Services
. Best of all, Twele continued, United HealthCare -- since it has very little to do with Asia and the U.S. economy -- has limited downside and good valuations.
Sounded good on Wednesday. But by Thursday morning Twele's words had come undone. Before the opening bell United HealthCare reported that it would need to take a whopping $900 million pretax charge to streamline the company before it takes over Louisville, Ky.-based managed care provider
. Even though the company reported earnings in line with the 66-cent-per-share analyst consensus Thursday morning, the larger-than-expected one-time charge sent the stock spiraling down 28%, or 15, to 37 7/8.
"It was a total shock to the Street," said Twele on Friday. "And it didn't make me feel very good when I remembered what I had said the day before." The $900 million charge also shocked officials at Humana, which had agreed to be acquired by United HealthCare back in May for stock valued at $5.5 billion. Humana officials were not told of the charge, and investors sent both stocks down -- Humana was down 23% Thursday -- on fears that the deal would fall through. The deal -- which is only worth about $3 billion to Humana shareholders as of Friday -- would make United HealthCare the largest HMO in the country.
"Our people believe that the deal is still on," says Twele, who notes that he remains a United HealthCare fan even after the company made him look bad on TV. The fund -- which is managed by a team at First American -- has not sold any of its United HealthCare position, points out Twele, and is the 15th largest holding in the fund's $1.6 billion portfolio. In fact, Twele is thinking of increasing their position in United to a top five holding now that it's cheaper than ever.
"It's selling like an insurance stock," says Twele, who stresses that his picking of United HealthCare on Wednesday should be viewed as a long-term investment. He adds: "The writeoff did create some initial confusion, but management was just pro-actively realigning the company before the Humana deal is completed."
Would he go on
again and say all this? "Probably not," says Twele.
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Thomson Company Reports.