Since its debut in 1957, the S&P 500 (^GSPC +0.11%) index has served as the gold standard for measuring investment performance. It's a collection of the largest publicly traded companies arranged according to each company's market cap. This means giants like Apple, Nvidia, and Microsoft represent an outsized percentage of the overall index.
Some investors complain that the S&P 500 is too heavily weighted toward its largest components, but you can't argue with its track record. Despite being off its peak, the index rose by 173% during the decade that ended on May 23, 2025. If we include dividend payments, the index delivered a 226% return over that period.
According to S&P Global, over 64% of actively managed large-cap equity funds underperformed the S&P 500 index over the past 24 years. Money managers have a hard time outperforming the benchmark, but there are individual businesses with competitive advantages that regularly outperform.
Until recently, UnitedHealth Group (UNH +1.20%) was beating the pants off the benchmark index. Here's why investors can reasonably expect this stock to bounce back and outperform in the decade ahead.
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A rough year for UnitedHealth Group's UnitedHealthcare business
Shares of America's largest health insurance benefits manager have plummeted recently in response to a string of bad news for its insurance operation. Luckily for its shareholders, the bad news doesn't involve a dividend reduction.
UnitedHealth Group's dividend payout has risen a whopping 320% over the past decade. At recent prices, the stock offers a 2.8% dividend yield. That's more than double the average yield you'd receive from dividend payers in the S&P 500 index.
UnitedHealthcare receives a fixed sum for each Medicare Advantage patient it enrolls. The segment added 2.1 million American consumers in 2024, many of whom are new Medicare Advantage patients.
According to the Affordable Care Act, the insurer has to spend at least 85% of premiums received on medical care, but that figure can climb much higher if the company isn't careful. The stock is tanking because it looks like management severely misjudged how much care incoming Medicare Advantage patients would use.
In January, management told investors to expect earnings to grow from $15.51 per share in 2024 to a range between $28.15 and $28.65 per share in 2025. In April, management revised that outlook downward to a range between $24.65 and $25.15 per share. Less than a month later, management broke the glass case and pulled the emergency handle that completely suspended its 2025 earnings outlook.
Upon suspending its earnings outlook, management cited higher-than-expected medical expenditures. UnitedHealth Group also announced the departure of its CEO, Andrew Witty.
Witty's exit coincided with a Wall Street Journal report that said a federal investigation into possible Medicare fraud was underway. On May 14, the company said the Department of Justice hadn't notified the company about a Medicare fraud investigation.
On May 21, The Guardian published a lengthy report describing nursing home staff pressured to prevent hospitalization of patients. The company issued another denial, but it won't do much to stop investors from fretting about an earnings contraction due to uncontrolled medical care expenses from the company's Medicare Advantage programs.
NYSE: UNH
Key Data Points
A bad news buy
UnitedHealth Group stock has been beaten severely because nobody knows just how low earnings will fall this year. In about a month, though, the company will report second-quarter results and most likely update forward-looking earnings guidance.
We don't know what management is going to say when it reports second-quarter results in July, but we can be reasonably confident that this company's best days are still in front of it. The Affordable Care Act says insurers must spend at least 85% of premiums on medical expenses, but it doesn't prevent insurers from raising premiums to compensate for higher costs.
In 2023, UnitedHealth Group's Optum Health segment employed around 10% of America's physicians. As the country's largest employer of medical professionals, it probably has more control over medical expenses than any of its competitors. American employers have limited options when it comes to selecting a health plan. With an integrated business model to keep internal costs relatively low, this insurer will likely remain a competitively priced option.
Poor planning regarding Medicare Advantage plans for the 2025 season could mean a severe earnings contraction, but it's most likely temporary. I believe UnitedHealth Group's strong competitive position will allow its bottom line to return to its usual pace of growth in another year or two.
UnitedHealth Group raised earnings per share by 10.9% annually over the past decade. Its present stock price, though, implies hardly any growth. It's been trading for just 12.4 times trailing-12-month earnings. That's an extremely low valuation for a business that could grow earnings by a double-digit percentage from 2024 levels over the long run. With this in mind, the odds are strong that this stock can outperform the benchmark index in the decade ahead.
