Members of Congress Are Loading Up on Johnson & Johnson and UnitedHealth. Here's Why Retail Investors Should Pay Attention.

Investors closely monitor the stock trades of members of Congress. The logic is that these politicians serve on committees that set defense, financial, and healthcare policy, monitor government contracts, and shape regulatory frameworks, all of which can affect healthcare companies.

Explicit insider trading is illegal under the Stock Act, but lawmakers understand how legislative shifts or government spending will affect large healthcare companies such as UnitedHealth Group (NYSE: UNH) and Johnson & Johnson (NYSE: JNJ).

Here are the Congress members buying these two stocks and why that should and shouldn't matter to retail investors.

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Who's buying Johnson & Johnson stock?

Although the healthcare giant's shares are up about 23% so far this year, the stock hasn't been that popular with members of Congress, who, during the past six to eight months, have sold more Johnson & Johnson shares than they've bought.

Three members, however, have loaded up on the company's shares this year. Rep. Lloyd Doggett (D-Texas), who serves on the House Committee on Ways and Means, the House Committee on the Budget, and the Joint Committee on Taxation, with roles spanning trade, oversight, and health policy, bought as much as $15,000 worth of Johnson & Johnson. Rep. Richard McCormick (R-Ga.) acquired up to $15,000 worth of the company's stock, while Rep. Lisa McClain (R-Mich.) bought as much as $30,000 worth of Johnson & Johnson. McClain's subcommittee assignments include Health, among other areas.

Other lawmakers, such as Rep. Thomas Kean Jr. (R-N.J.) and Rep. Julie Johnson (D-Texas), have been net sellers of the stock during the same period, shedding chunks of equity valued at as much as $100,000 and $30,000, respectively.

Who's buying UnitedHealth Group stock

UnitedHealth Group's shares are up more than 29% so far this year, and it has been a popular stock with Congress as well.

Republican Sen. Markwayne Mullin (R-Okla.), who serves on the Senate Committee on Health, Education, Labor, and Pensions, bought between $50,001 and $100,000 worth of United Health Group shares on Feb. 25.

In the House, several representatives bought shares of UnitedHealth Group, led by Ro Khanna (D-Calif.), who, through a family trust, made three buys of as much as $15,000 each of UnitedHealth Group's stock since March 23.

Does that mean retail investors should buy too?

Copy-trading politicians is a popular trend, but it has structural flaws that can severely damage retail investors' returns.

Under the Stock Act, members of Congress have up to 45 days to publicly disclose their stock transactions. By the time a trade appears on a tracking website, the market has often already adjusted to the news or earnings report that prompted it. You are essentially trading on stale data.

A lawmaker's $15,000 purchase of UnitedHealthcare Group might look like a roaring vote of confidence, but it could simply be a routine rebalancing of a multimillion-dollar portfolio. Without knowing their overall asset allocation, cost basis, or long-term financial goals, copying an isolated trade is like reading a single sentence out of a book.

Moreover, holding public office doesn't make someone a master stock picker. Lawmakers regularly buy at the top or sell right before a major rebound. Regulatory overhangs, such as ongoing Department of Justice antitrust or billing investigations into major insurers, can introduce lots of volatility that a lawmaker's diversified net worth can absorb but a retail account might not.

How to use this information

Instead of viewing a congressional disclosure as a direct buy signal, use it as a starting point for fundamental research.

If you're looking to add stable, dividend-paying healthcare exposure to a portfolio, Johnson & Johnson and UnitedHealth Group have excellent historical track records. Their dividends each yield slightly more than 2%, and during the past 10 years, they've steadily increased their earnings per share (EPS) and dividend. However, your decision to invest should be based on their current valuations, balance sheets, and how well they align with your personal risk tolerance, not because a politician filed a disclosure form on trade made more than a month ago.

James Halley has positions in Johnson & Johnson. The Motley Fool recommends Johnson & Johnson and UnitedHealth Group. The Motley Fool has a disclosure policy.