The healthcare sector is at the heart of the novel coronavirus. Consequently, names like UnitedHealth (NYSE:UNH) have enjoyed more investor interest than usual. Bulls are now hoping UNH stock will break out into new all-time highs. Therein lies the opportunity to own this stock.
If you already hold long positions, than you are safe to wait out the current battle. The trigger for UNH stock to start a new leg higher would be if shares pass $325. If you are not already long, that move past $325 should serve as your cue to start buying shares.
Conversely, if shares start to fade, a move toward $300 would represent another great buying opportunity. Why? There is support at least $15 below current prices.
And, if by any means the bears take charge and get UNH stock down to the $290 level, treat that as a third opportunity to add or initiate a long position.
Don’t Overthink It: UNH Stock Is Cheap
UNH stock is fundamentally cheap, with a price-earnings ratio of just 17.6 times. Also, given that its price-sales ratio is just 1.2 times, there is hardly any froth in the current stock price.
In other words, unless something major happens to the company, owning UnitedHealth at these levels is not likely to be a financial mistake. It also means that owners of UNH stock should have the confidence to shrug off periodic corrections and maintain their positions.
This is important for investors to know, because the entire stock market seems a little frothy now. Factoring in political unrest, you should expect some shake-ups in the market over the next few weeks.
However, at least when it comes to UNH stock, there is no need to worry. Buyers have come in at every dip, and it will take something significant to break this bullish trend.
However, there is one thing that is important to note. If bulls lose $303, sellers could take over and drive shares down another $15. This would still be within the support zones I outlined above, so it is not a long-term issue.
Simply put, UNH has strong support which emboldens the bulls to work on their upside momentum. There is not much reason to worry about downside risk here.
A Move in UnitedHealth Is Coming
The recent price action is getting tighter, indicating that a move is coming. For now, the direction of that move is unclear. The battle lines are between $303 and the new all-time high. Any breach of either of those lines should carry some momentum.
So what should you do? The opportunity is to either chase the breakout or buy the dip, whichever comes first. Those who know how to use options have the opportunity to sell the October $250 put and collect $2.20 for it. This way, you do not even need a rally to profit, and the stock can fall 20% before you lose any money. The break-even from this would be $247.80.
It is important to remember that regardless of how good the story looks for UNH stock, it trades inside of an entire stock market. If that finally corrects then it will drag UNH with it. Therefore, at these altitudes, all investors should be humble with their assumptions. Taking partial trades is better than loading up all at once.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com. Join his live chat room for free here.