Investing in the U.S. healthcare sector is akin to navigating a battlefield shrouded in fog. Stocks like UnitedHealth (UNH), Oscar Health, Progyny, Hims & Hers Health, or even Novo Nordisk may seem appealing, but a minefield of uncertainties surrounds them. I am skeptical whether UNH is the obvious value play.
Picture this: Deploying your capital is like sending troops into hostile, unpredictable terrain. If you’ve ever tangled with the American healthcare system, you know it’s a chaotic web of shifting regulations, bureaucratic red tape, and outright irrationality that can derail even the savviest investor’s plans.
UNH: A Distraction in the Fog
UnitedHealth is currently under a microscope, with the Department of Justice launching both civil and criminal investigations into potential fraud in its Medicare billing practices. These investigations, which are focused on allegations of overcharging and improper billing, could have significant financial and reputational implications for the company. For a long-term investor, this is a massive distraction. Regulatory scrutiny doesn’t just threaten your investment—it demands your time and energy, which are better spent hunting for truly innovative opportunities.
Is the broader healthcare sector undervalued? Signs suggest yes. But “undervalued” alone doesn’t justify making UNH a core holding. Short-term catalysts for a rebound are scarce. Unlike tech companies that can pivot swiftly, UNH is mired in a labyrinth of state and federal oversight, slowing progress to a crawl. This screams low-risk, low-reward: Park your money here, and you might watch it stagnate as inflation erodes your purchasing power.
The Opportunity Cost Trap
The real danger isn’t just losses—it’s opportunity cost, the silent killer that drains your portfolio’s potential. Opportunity cost is the potential benefit that is foregone when one alternative is chosen over another. Consider investors who snapped up ‘bargain’ Boeing shares during the pandemic. Sure, Boeing was cheap, with bankruptcy risks cushioned by its ‘too big to fail’ status and a near-duopoly in aviation. A Boeing bull might argue: ‘I’m up 30-50% over five years—what’s the problem?’ Two issues stand out:
That 30-50% lags the S&P 500’s 90-100% surge over the same period. Why take single-stock risk for returns that trail a broad index with far less stress?
Tying up capital in Boeing meant missing rockets like Nvidia’s jaw-dropping 1,500%+ run or the stellar gains from Palantir and MicroStrategy.
Piling into UnitedHealth feels like queuing for hours at a hyped-up New York City pizza joint for a $60 pie. Sure, it’s tasty, but was it worth skipping faster, cheaper (and equally delicious) options that don’t hijack your entire day?
I understand the appeal of this sector, having invested in healthcare stocks myself. But is now the right time to go all-in on UNH? I recommend a more cautious approach. In a market where value is hard to find, it’s important not to rush into a potential minefield just because it seems cheap. Patience and a keen awareness of opportunity cost can be your most powerful tools. Instead of making a significant investment in UNH, consider waiting for clearer signals where valuations don’t come with a heavy burden.
Reflecting on my own experience, the seismic movement in Palantir’s stock price YTD led me to sell my original cost-basis two years ago. This decision was not made lightly; it seemed reckless not to convert some gains into actual profits.
A few thoughts:
Investing isn’t an exact science. A good story stock with solid fundamentals can sometimes have wild meteoric rises. The talent scouts who discovered Taylor Swift as a teenager probably couldn’t foresee what she would become today. Scouts watching Aaron Judge hit at Fresno State probably did not forecast his ability to hit over 50 home runs and bat over .300 an entire season. Companies can far exceed even the rosiest of expectations because a. the stock market isn’t static, and b. catalysts that propel a stock upward are not visible on a balance sheet.
Palantir has solid fundmantels. Although the upward volatility is similar, it isn’t a “meme” stock in the same vein as Gamestop or AMC. Long-term investors should consider this an investment, not a trade.
The stock is riding on euphoria in the short term, and traders are piling in on the AI wave. Even institutions or “smart money” ignore valuation and are piling in to catch up on AI. There is no way to predict how long this roller coaster ride up will last, but sentiment and “vibes” are variable factors. As good as a company’s fundamentals are, Palantir is punching well above its weight class by almost every financial metric, which creates a situation in 2025 where the actual earnings results won’t justify the current stock price. Investors buying the stock at these prices could be severely disappointed 6-12 months from now with demanding Year-Over-Year comparisons.
Palantir’s market cap has surpassed Lockheed Martin’s (if you are reading this now, it could have doubled), which indicates an overextended stock. Based on revenue and net income, the stock is overvalued today.
Why won’t I liquidate my entire position and try to buy back at a better price? I have a much more long-term mindset and believe Palantir will eventually grow into its valuation. I am willing to ride the inevitable wave downwards but concede that at least some profits need to be taken to build a more significant cash position for the potential of a better buying opportunity in the future.
Company
Q3 Revenue 2024
Net income
Adjusted EPS (USD)
Palantir
726 million
143.52 million
0.10
Lockheed Martin
17.1 billion
1.62 billion
6.80
Looking at the bigger picture:
High stock prices can lead to wildly optimistic, unrealistic expectations where investors do not consider things going wrong.
Cash is the lifeblood of any portfolio. Trying to build a cash position during a downturn is often a reactionary emotional response and not ideal. It’s crucial to maintain a balanced portfolio with a healthy cash position.
Cashing in on 500-1,000% long-term gains can seem like a victory, but I urge investors to be careful. Palantir’s focus on emerging technologies like AI and data analytics positions itself well for future growth. Anyone investing in this company should have patience (which most investors do not have) and a high-risk tolerance. It is overvalued, but the commercial business and AIP are in their infancy. As an investor, Palantir is a rare diamond. It is too valuable to avoid having this cash-compounding multiplier in your portfolio. At the same time, by not selling at least some gains, if the stock were to pull back significantly, it would be as if this rally and your paper gains never happened.
This rapid move-up reminds me of Nvidia from 2016 to 2018. Even for the best-performing company in the world, investors were given windows of opportunity to buy back in at more reasonable valuations later on. I am confident we will have similar retracements with Palantir.
Revolve Group:
The biggest position in my portfolio from a total cost basis, I am optimistic about where Revole is headed in 2025. My stance on the fundamentals of Revolve has remained the same:
It’s not a homerun investment but a solid double
There is no single catalyst to propel exponential growth, and there are no glaring red flags or company-specific risks that would cause me to panic.
Guided by two co-founders with an entrepreneurial vision, no debt, a history of profitability, and a proven business model.
I remain patient because the growth strategy remains intact. Revolve’s biggest competitors are Nordstrom and Macy, legacy companies with the same problem: an inability to attract a Millenial and Gen Z audience. For a luxury department store, this is an existential looming threat.
Big Department store chains have become stale and lack the nimbleness to pivot their business models. Macy’s and Nordstrom likely need to leave the public markets to stay afloat, which is an excellent opportunity for Revolve. While most department stores need to downsize their retail footprint, Revolve’s brand is growing, and its presence in physical retail is just starting.
Some investors may feel this growth story is not appetizing enough, but I see a clear and easy opportunity. Among its e-commerce peers, it’s one of the few growing and GAAP profitable. Revolve isn’t trying to reinvent the wheel, like becoming “The Uber of the Skies” or “Revolutionizing Fitness.” Doing something never done before in investing comes with a higher reward but much more risk. The history of profitability gives me enough assurance to bet that Revolve will be a steadily growing winner.
I am cautiously optimistic. Many analysts are sleeping on Revolve, a small market cap company, becoming an emerging brand set for impressive results in the next decade. Their legacy competitors are in apparent crisis mode. At the same time, most of their e-commerce peers in the luxury industry lack the same financial and brand strength.
Devon Energy:
A position I started recently, Devon Energy, provides great diversity for investors looking to add value and non-tech growth to their portfolio. Oil and gas are highly cyclical commodities, but investors shouldn’t confuse cyclicality with speculation. The price of oil constantly fluctuates. Although oil stocks are sensitive to macroeconomics and geopolitics, Devon is among the best companies in the oil industry.
Reduction of expenses and increase in efficiencies from the Matterhorn Express & Blackcomb Pipeline.
Increase of oil production from the Grayson Mill Energy acquisition.
Dirt-cheap valuation with a strong balance sheet and consistent cash flow.
A company aggressively buys back its stock when said stock is deeply undervalued
An attractive variable dividend that allows investors to be long-term patient.
A “green light” from the Trump administration (less regulation and taxes) that Devon could benefit from significantly.
Companies in the energy sector aren’t every investor’s cup of tea, but building a robust portfolio requires some diversification and value. Although having an asset’s value strongly correlated to oil price may seem risky, investors should consider this a hedging investment rather than just a hedging tool.
I am not a big fan of derivatives or “buying insurance” in your portfolio other than cash. But if you are overweight tech, having an asset that can move up, even with rising interest rates, is quite enticing. Also, suppose you have positions for which you have a deep conviction that you would rather not sell in your portfolio. In that case, Devon Energy can be a great addition to your portfolio because it generates income and will likely rebound when oil prices fluctuate higher. From a long-term viewpoint, the price of crude Oil WTI today is neither high (140.00 in June 2008) nor low (18.84 in April 2020). It could be a good time to start a position in Devon Energy or other oil/natural gas energy companies, with their value being fair-to-good in the near short term.
Pfizer/Moderna:
Every investor has to prepare for the inevitable “truths” that will impact their portfolio: Recessions, pandemics, natural disasters, and geopolitical events are unavoidable and will happen again. Investors must stay disciplined during volatility and take preventive rather than reactionary measures before catalyst events happen. The latest information regarding H5N1 is quite alarming.
My current goal is not to put new money into something already expensive and hope it becomes even more expensive. A long-term investor needs a strategy that fits their goals instead of following a trading strategy and succumbing to behavioral biases of only buying stocks when they go up.
While the market is overweight in AI, I have been building and diversifying my portfolio over the past year by adding energy and biotech.
Pfizer is a more established biotech company that has made a big bet on oncology (cancer). Although the transition has been slow, I expect meaningful breakthroughs with cancer drugs in the next five years.
Moderna carries much higher risk and more significant potential rewards. Its focus isn’t on a specific drug approval but on utilizing AI and mRNA technology to create a “bioplatform.” If it succeeds, Moderna has the potential to unlock the holy grail for pharmaceutical drug companies. Vaccines and drugs that do not have patent expirations (assuming Moderna owns the mRNA vaccine intellectual property). A lot of this comes with unknowns and “ifs” with this bull thesis; however, we already know through data and science that mRNA technology works, and the reward is high (essentially a potential 100x payoff) with probabilities much higher than lottery odds.
Quick hits:
Hims & Her Health—I cannot fully grasp what will give Hims a long-term competitive advantage beyond branding and slick marketing. A brand’s impact on purchasing behavior in apparel works quite differently in telehealth. Your friends and social circle may care what and where you buy your clothes from; I don’t think it matters much with weight-loss drugs and erection pills. I am not bearish on Hims; just unsure how sticky brand loyalty will work in a B2C subscription telehealth platform.
Lemonade—Too early to sell. Investors should wait until Lemonade fully launches its car insurance product nationwide. Unlike most companies I write about, Lemonade has never been profitable. It will stay that way for the foreseeable future. It will remain a small position in my portfolio, but the company seems to be moving in the right direction. Like Roblox, these companies are about a potential story unfolding. The potential reward is a significant return based on a small initial investment. Look at it like a small fire; it could slowly burn or escalate into a major blaze. The stock is volatile and remains higher on the risk scale.
Nike—The turnaround story remains in play. Although sales have declined and the overall brand has stagnated, I am confident that the new CEO, Elliott Hill, can get Nike back on track. Although it seems like a somewhat oversimplified thesis, Nike should benefit from a Caitlin Clark halo effect. Clark was named Time Magazine Athlete of the Year and #100 on the Forbes 100 Most Powerful Women. I believe it is a safe bet Clark will rise up this list, as she is not even at her athletic peak. Clark’s fandom/demand is simmering, and Nike is known to historically promote and market athletes better than any other brand. It will be hard for Nike to screw this up.
Mercadolibre—I remain bullish. Most investors associate Mercadolibre with e-commerce, as it is the most valuable company in Latin America. Its strong infrastructure has created a fortified moat to protect itself from Amazon and other competitors. Next up is becoming the premier fintech bank in Latin America by leveraging its online ecosystem to extend into financial services. Mercardo Pago may never catch up to Nubank; it doesn’t have to. Mercardo Pago is penetrating a large market, and its competitive advantage comes from its ecosystem integration, much like how AWS benefited significantly from its integration with Amazon’s online business. The momentum and growth indicate that Mercado Pago will one day drive most of Mercdaolibre’s operating income, just like AWS does for Amazon. I am not bearish on Nu Holdings, but they are a pure fintech play. In contrast, Mercadolibe has several potential growth levers to pull, making it a superior investment.
Invest in Myself 