CEO Watchlist: Week In Review (5/18/25)

TOP NEWS AFFECTING THE STOCK MARKET THIS WEEK:

The “Safe Haven” Stock That Just Crashed 50% From Its Highs: Is It Time To Buy The Dip Or Run? (Source)

Stocks mentioned: $UNH, $HUM, $CI

UnitedHealth Group (UNH) has been around since 1977 and has grown into the largest health insurance company in the U.S. by revenue. For decades, it's been considered a safe, stable investment thanks to its consistent earnings growth, strong cash flow, and dominant position in the healthcare sector. As of late, UNH would be considered anything but a safe and stable investment. It all began in December of 2024 when the CEO of UNH was murdered in the streets by a man named Luigi Mangione. This garnered a lot of media attention around health insurers and specifically UNH, which caused the stock to pull back in price after some negative PR. UNH shares have continued to drop since then, hitting a five-year low as negative headlines continue to mount causing the stock to be down more than 50% from its highs. In the last week alone, the stock has dropped over 20% due to the company pulling its financial guidance for the year, as well as their CEO, Andrew Witty, abruptly leaving the company. If this wasn't bad enough, the Wall Street Journal published a story, shortly after, that there is a criminal investigation, by the Department of Justice, into potential Medicare fraud. UNH didn't waste any time and came out with a statement denying the investigation and calling the Wall Street Journal's reporting "deeply irresponsible." Thankfully, for shareholders, this was the end of the bad news and just the beginning of some positive developements for the company. The company surprised investors by replacing ex-CEO Andrew Witty with their former CEO Stephen Hemsley, who is known for his prior success and ability to grow UNH. In addition to all this, you had 3 directors, the CFO, and even the CEO buy stock in the company, with the CEO buying $25 million.

With all that being said, we at CEO Watchlist, have been debating whether or not UNH is investible here. We weighed the pros and cons, did our risk-reward analysis, and came to the conclusion that this is a "buy the dip moment". Let’s break down how we are analyzing the pros and cons by first looking at all the bad things as to why this “safe haven” stock is down over 50% from its all time high:

1. Cyber attack last year that they are still working through
2. Their CEO was murdered
3. Their new CEO quit abruptly
4. Big earnings miss, which is very rare for them
5. They cut all financial guidance for the year
6. Potential department of justice investigation into them for fraud
7. An administration that is cracking down on the healthcare industry
8. Regulation getting more strict on this business model
9. People hate insurance companies so PR is always bad
10. Analysts have recently downgraded the stock

So now that we’ve covered all the BAD, let’s look at why we're buying here:

1. The stock is down ~50% from its all time high, which tells me a lot of the bad is priced in already
2. The valuation of the company is at levels we haven’t seen since the Great Financial Crisis. This is a company bringing in $400 billion in revenue a year but valued at ~$264 billion and has a 11 forward P/E ratio, which is very low valuation-wise and represents a stock on discount.
3. It is extremely oversold hitting a 10 on RSI (below 30 represents oversold and this is way below 30)
4. They’ve basically cleared house with the old CEOs and have brought in a new CEO, unrelated to any of their recent issues, and has a strong track record of success and growth.
5. Even if there is fraud they will probably just have to pay some fine and it will be forgotten, especially since the old CEOs are gone, who it would have been done under.
6. Most importantly this is a “too big to fail” type company that the government more than likely needs to support. If a company like UNH goes under our country is in a lot of trouble. UNH is similar to Boeing who has also had a ton of fraud, misconduct, CEO failures, bad earnings, bad guidance, and investigations by the department of justice…. see how this starting to look similar? Yet look at what happened with Boeing. They lost close to 60% of their value, similar to where UNH is right now, but the company has survived and has now rallied ~90% from its lows in 2022 which represents around a 30% return per year since then. The thing is Boeing, like UNH, are almost necessities for the U.S. and are protected in a different way from other companies. For us, this shields the downside risk.
7. Not as important, but it doesn’t hurt that it pays a 2.7% dividend.
8. Insider buying by the CEO, CFO, and multiple other directors in an amount greater than $30 million just in the past week.

So yes things are EXTREMELY BAD for UNH but at some point it becomes cheap enough where we can’t ignore it. The downside risk, if we get more bad news, we've calculated to be about another 30% down, close to the $200 mark. But the upside potential back up to its old all time high would represent over 100% return. Even if it takes 2 years to get back to the all time high, that represents ~50% return annually. We're not backing up the truck to buy a ton of shares quite yet, but we have made an initial position and will dollar cost average into the stock as long as the risk-reward continues to be in our favor. Even when looking at other stocks that are in the same sector, such as Humana (HUM) and Cigna (CI), we actually think the risk-reward and potential upside is higher in UNH due to their large pullback as well as their leading dominance in the sector.

America Just Got Downgraded: Here’s What No One’s Telling You (Source)

Stocks mentioned: $MCO, $SPGI

Moody’s (MCO), a major credit rating agency, downgraded the U.S. credit rating from Aaa to Aa1, citing ballooning federal debt, rising interest costs, and a lack of meaningful fiscal reform. All this basically means, in simplified terms, is that the government is spending too much money, paying more money in interest, and hasn't fixed their budgeting. Moody's isn't the only credit rating agency that has downgraded the United States. A company called S&P Global (SPGI) and a company called Fitch, have both already cut their U.S. ratings in past years. All Moody's is really doing here is matching the other major credit rating agencies' posted ratings for the United States. A credit downgrade is never good, as it could make it more expensive for the U.S. to borrow money and might scare off investors from buying U.S. stocks, bonds, or even holding U.S. dollars. But is this as bad as the media is making it sound?

We at CEO Watchlist believe that this isn't great news, but we also don't think this will shift the narrative for our U.S. stock investments. The credit rating downgrade, we believe, is being blown a bit out of proportion as it seems like Moody's is just playing catch-up to what S&P Global and Fitch have told us over the past 10 years. Moody's is just late to the party. The true narrative for driving the stock market is still, overwhelmingly, Trump's policies on tariffs and trade deals. If a major country such as Canada, Mexico, or India were to announce a trade deal with the U.S. next week, the markets would rally on this news and completely ignore the downgrade from Moody's. So although Moody's downgrade is of some significance, there are greater macro stories that will determine the direction the stock market moves.

Even when we look historically at the other two downgrades from S&P Global and Fitch, they don't give us cause for concern. Let us explain why... In 2011, S&P Global issued the first-ever U.S. credit downgrade, which caused a massive market selloff, because it was unprecedented and came during a heated debt ceiling crisis, raising fears of default. This is nothing like today and like we said it had never happened before so investors rightfully panicked and sold stock. It also came at a time that was shortly after the great financial crisis, so people were still jittery around the stock market. Twelve years later, in 2023, the second U.S. downgrade from AAA status was issued by Fitch. With this being the second downgrade, investors weren't as shocked. Stocks ended up selling off 1-2% initially on this news, unlike the 5% sell-off we saw in 2011. Analysts attributed the calmer response in 2023 to factors such as a stronger U.S. economy, prior anticipation of the downgrade, and the continued perception of U.S. Treasuries as a safe investment despite the rating change. This takes us to today, where we believe this downgrade was highly anticipated by most institutions and analysts alike. If anything, Moody's was a bit late to the party as we said ealier. So yes, we do expect markets to have a slight negative reaction to this news, but we believe it will be more of a 2023 situtation rather than a 2011. More importantly, we are focused on tariff and trade deal news to shape our outlook on the market. As long as tariffs continue to improve, we believe markets will go higher, and we remain bullish into the end of the year.

This Major Tech Stock Just Hit a Huge Milestone, But Trouble Is Brewing Behind the Scenes... (Source)

Stocks mentioned: $COIN, $FBTC, $FETH, $SPY, $HOOD, $SOFI

The recent rally in the stock market has been led by technology stocks. One such stock is up over 55% in the past month, and that is Coinbase (COIN). Coinbase is a leading U.S.-based cryptocurrency exchange that allows users to buy, sell, and store digital assets like Bitcoin (FBTC) and Ethereum (FETH) and it just received one of the most bullish announcements a stock can get: it’s being added to the S&P 500 (SPY). This kind of news sends a stock higher for a number or reasons including: 1. Large index funds are forced to buy shares. 2. Investor confidence rises. 3. Demand pushes the price up. This was no different for Coinbase as shares jumped over 20% on this announcement. In a twist of events, shortly after the announcement of Coinbase joining the S&P500, the company revealed it was hit by a cyberattack where hackers stole customer data. Coinbase has stated that this may cost them up to $400 million to resolve, which could hurt future earnings reports. Adding to the pressure, it was also announced that Coinbase is under an SEC investigation for allegedly overstating active user metrics in past filings. With a mix of good and bad news, many investors are confused on what to do with Coinbase here, so we are going to break down our thoughts and how we are positioning ourselves moving forward.

With an ongoing SEC investigation and a cyberattack, investors are rightfully concerned owning this stock. On top of that, owning Coinbase stock is a high risk investment as it's very volatile and has a history of swinging 50% in either direction. Despite these negatives, we believe the S&P 500 inclusion is a big win for them long-term. Even more important is we have an administration that is very pro-crypto and even owns cryptocurrencies, which is extremely bullish. Due to these pros and cons we are currently sitting on the fence mainly because of rising competition from other platforms. Platforms such as Robinhood (HOOD) and SoFi Technologies (SOFI) have really grabbed the attention and market share of the younger investing crowd. When you factor in the high amount of competition with everything else, we are remaining net neutral on Coinbase. Until there is a bit more clarity on who is going to be the clear winner in this space and the difficulities Coinbase is going through personally, we believe the stock is a bit too high risk with how much it's moved up in the past month. Unlike Coinbase, we have about a dozen other stocks in our personal portfolios that we do have very high conviction in. If you are an Investment Club member, click HERE to see our entire list of stocks we currently own. If you are not an Investment Club member, and would like to see all the stocks we are buying and selling on a daily basis, click HERE to gain access to the Investment Club.

INSIDER TRADES FROM THE WEEK:

1. UnitedHealth Group (UNH) - Stephen Hemsley, CEO, bought ~$25 million of UNH stock on May 16, 2025, and it was reported to the public later that day. (Source)

2. Coupang (CPNG) - Greenoaks Capital, director, bought ~$37.5 million of CPNG stock on May 14-15, 2025, but it was reported to the public on May 16, 2025. (Source)

3. iTeos Therapeutics (ITOS) - EcoR1 Capital LLC, a 10% owner of the company, bought ~$38 million worth of iTeos Therapeutics stock on May 14-15, 2025, but it was reported to the public on May 16, 2025. (Source)