UnitedHealth Group Incorporated (UNH) Stock Forecasts

Summary

Our bond/stock asset-allocation model is indicating that bonds are the asset class offering the most value at this market juncture, as interest rates have risen over the past few quarters and stocks have recovered some of the ground lost last year. Our model takes into account current levels and forecasts of short-term and long-term government and corporate fixed-income yields, inflation, stock prices, GDP, and corporate earnings, among other factors. The model output is expressed in terms of standard deviations to the mean, or sigma. The mean reading from the model, going back to 1960, is a modest premium for stocks, of 0.15 sigma, with a standard deviation of 1.0. The current valuation level is a 0.74 sigma premium for stocks, which is inside the normal range but up from the 0.56% sigma premium a month ago. Other measures also show reasonable valuations for stocks. The current forward P/E ratio for the S&P 500 is 17, which is within the normal range of 10-21 and down from 22 a year ago. The current S&P 500 dividend yield is 1.6%, below the historical average of 2.9% but up from an ultralow 1.2% as recently as 2021. Based on current valuation levels, as well as our interest-rate and earnings forecasts, we are expecting a recovery in stock prices in 2023 from bear-market lows. We have established a year-end S&P 500 target of 4,300. This may change in the weeks ahead, as the market has neared our target and we remain bullish on stocks. Our current recommended asset allocation for moderate accounts is 67% growth assets, including 65% equities and 2% alternatives; and 33% fixed income, with a focus on opportunistic segments of the bond market.