UnitedHealth Group Incorporated (UNH) Stock Forecasts

Summary

Our stock/bond asset-allocation model, which we call the Stock-Bond Barometer, is indicating that bonds are the asset class offering the most value at the current market juncture. But not by much. 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 0.16 sigma, with a standard deviation of 0.98. The current valuation level is a 0.18 sigma premium for stocks, which is down sharply from a 0.85 sigma premium at the end of 3Q23. Other valuation measures also show reasonable multiples for stocks. The current forward P/E ratio for the S&P 500 is approximately 19, which is within the normal range of 13-24 and down from 23 in 2021. The current S&P 500 dividend yield of 1.4%, while below the historical average of 2.9%, is up from an ultralow 1.2%, also in 2021. And that current S&P 500 dividend yield is 33% of the 10-year Treasury yield, compared to the long-run average of 39% and the all-time low of 18% in 1999. Looking ahead, we expect the results from our stock/bond valuation model to favor stocks, as interest rates head lower in 2024 and EPS growth picks up. Based in part on the output from our Stock-Bond Barometer, our current recommended asset allocation model for moderate accounts is 73% growth assets, including 68% equities and 2% alternatives; and 27% fixed income, with a focus on Core and Opportunistic segments of the bond market.