'Fast Money' traders discuss if UnitedHealth is poised to make a comeback

Key Concepts

• Market Action & Influences: Intraday record, Dow Jones Industrial Average (DJIA) movement, macroeconomic factors, news impact.
• UnitedHealth (UNH): Impact on Dow, Berkshire Hathaway's investment, DOJ investigation, medical utilization costs, free cash flow, valuation, management changes.
• 13F Filings: Backward-looking nature, influence on investor behavior.
• Seasonal Market Weakness: August-October period, potential for change due to Fed meeting.
• Federal Reserve (Fed) Meeting: Anticipated rate cut, impact on market sentiment.
• Options Trading: Call buying (short-term and long-term), trading volume as an indicator of sentiment.
• Value Investing: Long-term investment strategy focused on undervalued assets.

Market Overview and Influences

The S&P 500 initially set an intraday record but closed in the red along with the Nasdaq. The Dow's performance was significantly influenced by UnitedHealth (UNH). The market was relatively quiet in terms of news, but macroeconomic factors are at play.

UnitedHealth (UNH) Analysis

• Impact on Dow: UNH affected the Dow by approximately 180 points on the day and has contributed to a 1000-point deficit for the year.
• Berkshire Hathaway's Investment: Warren Buffett's Berkshire Hathaway has invested in UNH, which is seen as a long-term value play despite short-term challenges.
• Challenges: UNH faces rising healthcare costs and a Department of Justice (DOJ) investigation into its billing practices.
• Valuation: Despite the challenges, UNH is considered cheap, trading at a valuation not seen in 20 years (excluding the Global Financial Crisis period). The company is expected to generate $25 billion in free cash flow on a $300 billion valuation.
• Management: Steve Hemsley has returned to a leadership role, which is viewed positively by some.
• Options Activity: There has been significant call buying activity in UNH options, indicating speculative bullishness. Over a million contracts traded, representing more than 2% of all options flow on the day.

13F Filings and Investor Behavior

13F filings are backward-looking and may not accurately reflect current market conditions. However, they can influence investor behavior by attracting more investors to certain names.

Seasonal Market Weakness and the Fed

• Historical Trend: The period between August and October is typically a weak seasonal period for the overall markets.
• Potential Disruption: This year could be different due to factors such as Trump, Putin, and the upcoming Fed meeting.
• Fed Meeting: The market is anticipating a rate cut at the September Fed meeting. A 25 basis point cut is expected, which could provide a tailwind for the market. A 50 basis point cut is considered less likely.

Investment Strategies and Perspectives

• Long-Term Value Investing: Warren Buffett's investment in UNH is viewed as a long-term value play, betting that the company will overcome its short-term challenges.
• Short-Term Trading: While there is speculative bullishness in UNH, it is not recommended as a short-term trade.
• Options Strategies: The significant call buying activity suggests that some investors are using options to capitalize on potential upside in UNH.

Conclusion

The market's performance is being influenced by a combination of macroeconomic factors, company-specific news (particularly UNH), and anticipation of the Fed's actions. While seasonal weakness is a concern, a rate cut could provide a boost. UNH presents a complex investment case, with short-term challenges but potential long-term value. The high volume of call options trading in UNH reflects speculative bullishness, but investors should carefully consider the risks and uncertainties before making any decisions.