Investing legend Peter Lynch once noted, insiders can sell stock for any reason, but they but it for only one: they think the price is going to go up. Battered UnitedHealth Group (UNH) insiders just bought almost $1.6 million shares of the country’s biggest health insurer at a time when UNH stock is down 50% in the past month.

Because insiders have been net sellers of stock over the past few years as UNH’s price rose – some $205 million worth since 2022 – does that mean they believe the health insurer is just too cheap to ignore? More importantly, should you follow their lead?

When It Rains, It Pours
Beginning in mid-April, UnitedHealth was hit by a perfect storm of problems and controversies, issues that arguably extend back to December when their CEO Brian Thompson was assassinated.

Since then, however, UNH posted a rare earnings miss that saw it revise its full-year outlook lower, its new CEO abruptly resigned, it pulled its full-year guidance, and The Wall Street Journal reported the insurer was under criminal investigation by the Justice Dept. (which UNH denied and called the reporting “irresponsible”).

The stock plunged in the aftermath of the successive hits, and UNH shares that had traded at $600 a pop now go for less than $300 each. Which is why the insiders diving into UNH stock raises the question of whether investors should buy, too.

Going Long
Three directors – Timothy Flynn, Kristen Gil, and John Noseworthy – bought a combined 26,588 shares for a total of $1.59 million. Gil was the biggest buyer, purchasing $1 million worth, is also the most notable because she is a senior executive at Google. She also bought at UNH’s low point around $271 a share.

An investment decision hinges on whether the Journal’s reporting is correct or not. If it is, then UNH could plunge further, if not, the health insurer becomes a buying opportunity. I’d argue the insider buying suggests they believe in the latter scenario.

While I do think the long-term outlook for UNH is good, I still feel investors should sit on the sidelines longer until more clarity surrounding the possible investigation materializes.

— Rich Duprey

MAG-7 Stocks Are Dead—Here's What Killed Them [sponsor]
The old way of investing in tech giants is over. A NEW strategy unlocks 146X more income on the SAME underlying stocks (like Meta, Apple, and Amazon) -- WITHOUT options trading. Click here to uncover the NEW MAG-7 alternative.

Source: Money Morning