Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 21 September 2015 at 10:30 GMT

Alpha Picks: UnitedHealth is still a winner

Head of Equity Strategy / Saxo Bank
  • UnitedHealth stock is cheap given its strong growth rates
  • LyondellBasell rebounds from overreaction to China worries
  • Altice rises 19% on $17.7bn Cablevision acquisition
 UnitedHealth outclasses its peers on several fronts. Photo: iStock

By Peter Garnry

Today we release our top equity alpha picks across the mega, large and mid-cap segments on the US and European equity markets. We present our top 20 picks across each segment. The picks are based on our quantitative equity model utilising several well-known risk factors.

Business is good in US health care

UnitedHealth, the largest health care provider (health insurer) in the US, is up 23% this year as the health care provider is expected to deliver 18% sales growth y/y and 14% profit growth y/y. With a valuation of 10x EV/EVITDA it trades on par with the market which is cheap given its significantly higher growth rates. On top of that, UnitedHealth sports a 22% ROIC, clearly above the average, signaling the attractive returns on capital this industry provides to shareholders.

UnitedHealth share price since December 2014
UnitedHealth share price
Source: Saxo Bank 

The company boasts very stable operating margins and the outlook is very predictable. UnitedHealth pays consistently lower medical benefits relative to premium compared to its peers resulting in overall better financial performance over its competitors. In other words, it is a high quality stock. The stock was the best performing in our top 20 alpha picks among the mega cap segment which is up 4% the past week.

LyondellBasell bounces back

Last week the large US chemical producer LyondellBasell was our stock in focus as it had declined more than 6% in a week. Our view was that the decline represented a good entry point for long-term investors as the growth concerns in China had led to an overreaction in the stock price. The past week the stock has been the best performing of our alpha picks in the large cap segment up 4%.

LyondellBasell share price in 2015
LyondellBasell share price
Source: Saxo Bank 

The US chemical company has a large and diversified revenue of $39.7 billion in the last 12 months with an attractive EBITDA margin of 18.3% which is also expanding due to favourable underlying factors in the industry.

The company is currently benefiting from low US Henry Hub natural gas prices, driven by the US shale gas revolution, compared to global oil prices boosting margins.
What is a very attractive about the company is the fact that it has been able to expand operating margins in an environment with downward pressure on chemical prices due to increasing pricing power. In addition the company has a very low net debt to EBITDA levels.

The ROIC is 35.5% which is one of the highest ratios in the industry among the major players. As a result, the current low valuation is not reflecting the strong business fundamentals.

Altice takeover lifts stock by 19%

Last week Dutch Altice agreed to buy Cablevision for $17.7bn pushing the stock up by 19% in a bid to strengthen the US cable market creating the fourth largest cable provider in the country. The takeover follows the acquisition of Suddenlink back in May for $9.1bn, taking Altice into the US cable market for the first time.

Cablevision stock price in 2015
Cablevision share price
Source: Saxo Bank 

Cablevision is a very attractive business and the valuation post the bid is still fair, so the bid from Altice may entice other US cable providers to head into a bidding competition.

Cablevision is part of our Saxo Equity Alpha Picks portfolio and helped our portfolio producing alpha last week. The portfolio is only available to Saxo Bank clients on request through a sales trader.

Find all alpha picks across the mega, large and mid-cap segment in the attached PDF.

– Edited by Clare MacCarthy


Peter Garnry is head of equity strategy at Saxo Bank


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail