In the last few weeks, it’s come to light that Warren Buffett has been buying UnitedHealth (NYSE: UNH) stock for his investment company, Berkshire Hathaway. I’m not surprised by this trade – back on 5 August, I said UnitedHealth shares fit the Buffett mould perfectly.

Should investors consider following the investment guru into the health insurance stock? Let’s discuss.

A disaster in 2025

UnitedHealth stock’s historically been a very consistent performer. However, this year, it’s been an absolute dog. One reason for this is that recently, the health insurance company has significantly underestimated the demand for, and cost of, health services in the US. As a result, it has released several major profit warnings (and CEO Andrew Witty stepped down).

Making matters worse, the company’s been embroiled in a couple of scandals. In May, The Wall Street Journal reported that the US Department of Justice was carrying out a criminal investigation into the company for possible Medicare fraud while The Guardian reported that the group had made secret payments to nursing homes to keep residents out of the hospital.

This combination of issues has sent the share price down significantly. At one point recently, it was trading near $240 – about 60% below its highs.

Turnaround potential

So the company’s clearly a bit of a mess right now. However, I think it should be able to turn things around. The CEO is now Stephen Hemsley, who was chief exc of the group between 2006 and 2017 and oversaw a period of huge growth for the business. And he’s confident he can fix things.

Hemsley’s plan involves optimising insurance pricing, improving the company’s ability to anticipate future trends, fixing business practices, and enhancing the consumer and provider experience. He believes that these strategies can result in a return to earnings growth next year.

Attractive valuation

Zooming in on the stock itself, it appears to be priced relatively attractively. Hemsley has now provided earnings per share guidance of $16 this year (versus guidance of up to $30 at the start of the year).

So at today’s share price of $300, the price-to-earnings (P/E) is around 19. That’s below the US market average and it’s not a high multiple for an industry-leading insurer.

It’s worth noting that a lot of analysts believe Hemsley’s ‘kitchen sinked’ the guidance and provided a low earnings estimate that’s beatable. So earnings for the year could come in higher than $16 and make the stock look cheaper.

Worth a look

I’ll point out that a turnaround here could take time. So while the stock’s risen since it came to light that Buffett has bought it, there’s no guarantee it’ll keep rising in the short term.

After multiple profit warnings, the company will have to prove that it’s on top of its insurance pricing. It will also have to win back the trust of institutional investors and this may not be easy.

I believe the stock’s worth considering today however. When an industry leader’s trading 50% below its highs, there’s often an opportunity to capitalise on.