UnitedHealth has regulatory headwinds to get through in 2026, says DCLA's Sarat Sethi

Key Concepts

• DCLA: (Discussed as) Managing Director’s firm providing financial analysis.
• Utilization Trends: Refers to healthcare service usage impacting UnitedHealth’s margins.
• Regulatory Headwinds: Government regulations impacting company performance, specifically UnitedHealth.
• AI Enhancement: The potential for Artificial Intelligence to improve efficiency and growth, particularly for Salesforce.
• Recurring Revenue: Consistent revenue streams, a strength of Salesforce’s business model.
• K-Shaped Retail Economy: A retail landscape with diverging trends – some sectors thriving, others struggling.
• AWS (Amazon Web Services): Amazon’s cloud computing division.
• Custom Silicon (Rainier Project): Amazon’s development of its own chips for AI and other applications.
• Capex: Capital Expenditure – funds used by a company to acquire or upgrade physical assets.
• Mag 7: Refers to the seven largest US technology companies (likely Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta).

Underperforming Stocks & Potential Turnarounds in 2026

This discussion focuses on the performance of several Dow Jones Industrial Average and S&P 500 companies in 2025, identifying underperformers and assessing their potential for recovery in 2026. The analysis is provided by Sarat Sethi, Managing Director at DCLA, and a CNBC contributor.

UnitedHealth (Down 35% in 2025)

UnitedHealth experienced the largest decline in the Dow, falling 35% in 2025. Sethi attributes this primarily to regulatory headwinds impacting the company’s margins. He notes the company is undergoing a leadership transition with a new CEO, and stabilization will take time. He draws a parallel to CVS, suggesting a similar “execution story” and navigating regulatory challenges will be key. Expectations for the company were high, given its previous premium valuation of 19 times earnings.

Salesforce (Down 20% in 2025)

Salesforce, down 20% in 2025 while the S&P 500 rose 17%, has recently seen a 15% rebound in the past month. However, the broader software sector has been out of favor. Sethi expresses optimism about Salesforce, believing AI will enhance its capabilities rather than being a disruptive threat. He emphasizes investors were anticipating substantial growth, which hasn’t materialized yet, but expects it to come. He highlights the strength of Salesforce’s recurring revenue model, which is currently undervalued, noting the company trades at 16 times cash flow – its lowest valuation in years. He recommends considering Salesforce for investment in the coming months.

Amazon (Up 6% in 2025 – Underperforming Mag 7)

Despite a 6% increase in 2025, Amazon underperformed compared to other companies within the “Mag 7.” Sethi points out that Amazon currently trades at 12.5 times cash flow, down from its historical average of 15. He identifies several key tailwinds driving Amazon’s potential: benefiting from the K-shaped retail economy, the strong performance of AWS, and emerging opportunities in robotics. He notes that Tesla receives significant investor attention for its robotics initiatives, but Amazon’s robotics efforts are similarly impactful, enhancing margins and efficiency. He also highlights the growth of Amazon’s advertising business. He believes Amazon is currently “underappreciated” and “underowned” due to the focus on other Mag 7 companies.

AWS & Custom Silicon: A Competitive Advantage

A significant portion of the Amazon discussion centers on AWS and its development of custom silicon, specifically the “Rainier” project. Sethi argues that Amazon’s investment in custom chips will allow it to offer AI solutions more efficiently than competitors. He emphasizes that Amazon doesn’t necessarily need to rely on the most advanced chips from NVIDIA, giving them a cost advantage. He believes the internal R&D spending and synergistic effects across Amazon’s various divisions will create a significant competitive advantage. He asserts that no other company can fully replicate Amazon’s integrated ecosystem, with Walmart.com as a retail competitor and Google as a competitor in the cloud space (AWS). He believes the “sum of the parts” is currently undervalued and will increase as these elements work together, potentially driving the 12.5 cash flow multiple higher and boosting earnings growth.

Shifting Investor Focus & Amazon’s Flexibility

Sethi suggests that a potential shift in investor sentiment away from high-growth, high-spending companies towards value could further benefit Amazon. He points out Amazon’s historical ability to manage its Capex (Capital Expenditure) – it can cut back on investments and remain cash flow positive, or increase spending in areas deemed beneficial. This flexibility provides Amazon with a strategic advantage.

Synthesis & Main Takeaways

The discussion highlights a nuanced outlook for several major tech companies. While UnitedHealth faces significant regulatory challenges, Salesforce appears poised for a rebound driven by AI and its strong recurring revenue model. Amazon, despite underperforming in 2025, is positioned for growth due to its diverse business segments, AWS’s competitive advantages in custom silicon, and its financial flexibility. A potential shift towards value investing could further enhance Amazon’s appeal. The key takeaway is that identifying undervalued companies with strong fundamentals and potential catalysts (like AI for Salesforce or custom silicon for Amazon) is crucial for achieving “huge gains” as the year closes out and looking ahead to 2026.