Jim Cramer Says UnitedHealth Group Inc. (UNH) Is An ‘Unusual Rate Cut Winner’

We recently compiled a list of the Jim Cramer's 10 Best Stocks to Buy After Fed Rate Cut. In this article, we are going to take a look at where UnitedHealth Group Inc. (NYSE:UNH) stands against Jim Cramer's best stock picks.

In a recent episode of Mad Money, Jim Cramer observes that many on Wall Street enjoy going against the crowd, which is why some analysts downplay the significance of a half-point rate cut. He disagrees, asserting that common sense often gets overlooked by those who think they know better.

"Everybody on Wall Street loves to be a contrarian, which is why so many commentators keep trying to minimize the impact of a half-point rate cut. Not me! No matter what, common sense dictates that there are always people who think they know better than common sense, and they don’t. There are so few advantages to age, I have to tell you."

Market Roars Back: Bears Get Played as Dow Surges 522 Points Amid Rate Cut Frenzy!

Jim Cramer points out the irony that, despite critics spreading negativity, the stock market soared today, with the Dow jumping 522 points, the S&P rising 1.7%, and the NASDAQ climbing 2.5%. He found it remarkable. Initially, bearish sentiment swayed the markets right after the announcement yesterday, causing many to panic and sell, particularly in tech stocks, which often face unwarranted hits from rate cuts.

Critics fueled this panic, echoing a negative narrative without questioning it, which led to a rush for the exits. Cramer emphasizes that this reaction to a rate cut, rather than a hike, creates a misleading panic, demonstrating how easily people can be misled into thinking a 50 basis point easing is bad news, which he believes is simply foolish.

"Funny thing: while these critics were polluting your minds, the stock market exploded today, with the Dow gaining 522 points, the S&P surging 1.7%, and the NASDAQ pole vaulting 2.5%. I’ve got to tell you, it was a thing of beauty. The Bears initially had their way with the markets, distorting a view immediately after the announcement at 2 p.m. yesterday. They fooled enough people to start blowing out of stocks in their frenzy, especially tech stocks, as if those are the ones that always get hit on a rate cut.

That’s just not true. There were also people who panicked, thinking the Fed was panicking. Commentator after commentator came on air, echoing this negative narrative out of nowhere. After all, who wants to go against the tide and question why sellers are streaming for the exits? You don’t want to be in the way of that. That’s how the aftermath of a rate cut—not a hike, but a cut—snowballs into a giant avalanche of people who have been instantly brainwashed into thinking that a 50 basis point easing is somehow bad news. That’s what we saw yesterday after 2:00. That analysis was absurd, just pure foolishness."

50 Basis Point Cut Boosts Stocks and Housing

Jim Cramer notes that during a period of rate cuts, the potential winners are diverse and promising, while the losers are clear and should be avoided. He highlights that once the Wall Street Journal announced the possibility of a 50 basis point cut, the range of stocks that could benefit significantly widened. A smaller 25 basis point cut would have helped homebuilders if they increased construction, but they’ve been hesitant due to still-high rates. However, a 50 basis point cut will lead to lower mortgage rates, making homes more affordable and likely boosting the housing market.

"The winners in an easing cycle are varied and exciting, while the losers are obvious and must be avoided. From the moment the Journal reported that there could be a 50 basis point cut, the swatch of what can go higher expanded dogmatically. A 25-point cut would have been truly beneficial for homebuilders if they would just start building a lot more homes, that's something they've been reluctant to do because rates are still too high. But a 50 basis point cut means lower mortgages for certain and, therefore, more affordable homes."

Our Methodology:

In this article, we review the latest episode of Jim Cramer's Mad Money where he discussed several stocks. We have ranked the companies according to their popularity among hedge funds, starting with the least owned and progressing to the most owned.

At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

A senior healthcare professional giving advice to a patient in a clinic.

UnitedHealth Group Inc. (NYSE:UNH)

Number of Hedge Fund Investors: 114

Jim Cramer observes that UnitedHealth Group Inc. (NYSE:UNH), a healthcare company, has historically performed well during periods of interest rate cuts. Despite its potential to be affected by economic downturns, UnitedHealth Group Inc. (NYSE:UNH) has demonstrated strong operational excellence and has outperformed its competitors in the managed care industry.

"United Health is an unusual rate cut winner. In theory, it should be more of a slowdown stock, but empirically, it’s done very well when the Fed starts cutting rates. UNH is a terrific operator that’s been pulling away from the rest of the managed care space, but I wouldn’t recommend buying it right here unless you think the Fed’s desperately cutting rates because the economy is falling apart. Then you buy UNH. I don’t see that happening."

UnitedHealth Group Inc. (NYSE:UNH) continues to demonstrate strong financial performance, with Q2 2024 total revenue reaching approximately $92 billion. This growth, driven primarily by its UnitedHealthcare and Optum segments, underscores the company's ability to capitalize on favorable market conditions. UnitedHealth's diversified business model, encompassing health insurance, data analytics, and pharmacy care services, provides a strong foundation for sustainable growth.

UnitedHealth Group Inc. (NYSE:UNH)’s focus on innovative healthcare solutions is clear in its investments in technology, particularly in telehealth and digital health, which enhance patient outcomes and lower costs. The growing membership base, especially in government programs like Medicare Advantage, is expected to drive future growth as the population ages.

Invesco Growth and Income Fund stated the following regarding UnitedHealth Group Incorporated (NYSE:UNH) in its Q2 2024 investor letter:

“UnitedHealth Group Incorporated (NYSE:UNH): Like many managed care providers, United Health has come under pressure from rising medical costs and higher-than-expected utilization. The stock is currently undervalued based on our analysis. We view the company as a high-quality compounder with secular growth opportunities in the managed care segment. The US Presidential election may cause additional near-term uncertainty, but we believe United Health will be able to rebound once pricing and utilization issues normalize.”

Overall UNH ranks 2nd on our list of Jim Cramer's best stocks to buy after Fed rate cut. While we acknowledge the potential of UNH as an investment, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than UNH but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.