1 Reason to Buy UnitedHealth Group Stock Before Oct. 28

Key Points

• UnitedHealth has faced multiple headwinds recently, and its results haven't been strong of late.

• Its low valuation, however, means a lot of bearishness is priced in.

• The stock's risk-reward profile may be enticing for long-term investors.

• 10 stocks we like better than UnitedHealth Group ›

Health insurer UnitedHealth Group (NYSE: UNH) reports its third-quarter earnings results later this month, on Oct. 28. It could be a pivotal report for the company, which indicates whether the stock's recent rally continues or if it goes back into a tailspin.

The healthcare company has faced challenges with rising medical costs in recent quarters, which resulted in it missing expectations. It changed its CEO, the Department of Justice is investigating its billing practices, and there's been a shortage of reasons to be bearish on the stock. This year, it's trading down a whopping 30%.

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Despite all that, here's why you may want to buy the stock before it posts its latest earnings numbers.

Image source: Getty Images.

UnitedHealth's stock is ridiculously cheap

Due to its decline in price over the past year, UnitedHealth is trading at a low price-to-earnings (P/E) multiple of 15. That's well below its five-year average of 25 (and that's also what the average stock on the S&P 500 index trades at). Even based on analyst estimates of future earnings, its forward P/E multiple of 20 isn't that high, either.

This gives investors a valuable buffer, a margin of safety, should the company underwhelm in its upcoming earnings. That buffer is important, as it can limit the downside risk for investors who are concerned about the stock. With so much bad news priced into its current valuation, unless something completely unexpected arises, UnitedHealth probably won't go into a deep decline after earnings. The company released updated guidance in July that projects its adjusted earnings per share for the full year to be $16 per share, at least. Ultimately, this remains a strong and profitable business.

UnitedHealth looks like a good stock to invest in for the long haul, and at a discounted price, it can be a no-brainer buy.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends UnitedHealth Group. The Motley Fool has a disclosure policy.