S&P 500 Trades at 22x Earnings in August 2025 While Managed Care Stocks UNH ELV CI CNC MOH Offer Value at 9–16x Earnings

In the current market environment, where the S&P 500 trades at elevated multiples exceeding five times book value and 22 times earnings, the healthcare sector stands out as a pocket of relative value. With valuations hovering around 16 times earnings and 9 to 10 times free cash flow, healthcare stocks—particularly in managed care—offer compelling opportunities for investors seeking defensive growth amid broader market froth. This disparity underscores a potential rotation into sectors with durable fundamentals, where demographic tailwinds and operational efficiencies could drive outsized returns over the medium term.

The Valuation Gap: Healthcare Versus the Broader Market

As of 17 August 2025, the S&P 500’s premium pricing reflects optimism around technology-driven growth and economic resilience, yet it leaves little margin for error in an era of persistent inflation and geopolitical uncertainty. In contrast, healthcare equities, which comprise about 10% of the index’s market capitalisation, have underperformed, delivering muted returns over recent years. Data from U.S. Bank indicates that the sector posted returns of -3.6%, 0.3%, and 0.9% in 2022, 2023, and 2024 respectively, with a further decline of 4.1% year-to-date in 2025. This lag has compressed valuations, making the sector attractive for value-oriented strategies.

Analyst sentiment, as reported by Fidelity, highlights healthcare stocks as out of favour but poised for recovery, driven by innovations in specialty drugs and undervalued assets. Morningstar’s analysis from early 2024 noted that healthcare valuations appear attractive across most sub-industries, with the sector underperforming broader U.S. equities by 26% over the prior 12 months. This backdrop sets the stage for a reassessment, especially in managed care providers, where forward price-to-earnings ratios sit well below historical averages and the S&P 500 benchmark.

Key Drivers of Healthcare’s Appeal

Several structural trends bolster the case for healthcare investments. Demographic shifts, including an ageing population, continue to fuel demand for services. Americans aged 60 and older control an estimated $84 trillion in wealth—about 70% of U.S. totals—and allocate a significant portion to healthcare. Medicare Advantage enrolment is projected to surpass 35 million by 2027, according to industry estimates, amplifying revenue potential for leading players.

Moreover, advancements in AI-driven healthtech, data analytics, robotics, and medical devices are reshaping the landscape. SVB’s 2025 Healthcare Investments & Exits Report emphasises venture capital inflows into AI applications and biopharma, signalling innovation-led growth. Bain & Company’s review of healthcare private equity in 2024 noted dealmaking at near-record levels despite high borrowing costs, pointing to resilient fundamentals.

PwC’s mid-2025 outlook on global M&A trends in health industries warns of challenges like tariffs and pricing reforms but anticipates consolidation as a response to economic pressures. These factors collectively suggest that healthcare firms with strong balance sheets and diversified operations could navigate headwinds effectively.

Spotlight on Managed Care Leaders

Within healthcare, managed care companies exemplify the valuation opportunity. These firms, which provide health insurance and related services, have faced pressures from rising medical loss ratios (MLRs) and utilisation spikes post-2024, yet their core businesses remain robust. Let’s examine a selection of prominent names, drawing on market data as of 17 August 2025.

UnitedHealth Group (UNH)

UnitedHealth Group, the largest integrated healthcare services provider in the U.S., trades at a forward P/E of 10.17, markedly below its five-year historical average of 20–24.9x and the industry norm of around 20.7x. Its price-to-book ratio stands at 2.90, with a market capitalisation of $275.3 billion. Shares closed at $304.01, up 11.97% on the day, amid a 52-week range of $234.60 to $630.73. Analysts project forward EPS of $29.90, implying strong growth potential. Hedge fund activity, as noted in recent filings, shows increased buying, reflecting confidence in its Medicare Advantage dominance (29% market share) and Optum’s expanding platforms. Forecasts from consensus models suggest revenues could approach $500 billion by end-2027, driven by membership growth and efficiency gains.

Oscar Health (OSCR)

Oscar Health, a tech-forward insurer, presents a higher-risk, higher-reward profile with a forward P/E of 27.93, though this is offset by rapid growth prospects. Shares ended at $15.64, up 6.54% daily, within a 52-week band of $11.20 to $23.79. Its market cap is $4.0 billion, with forward EPS estimated at $0.56. Despite a negative trailing EPS of -$0.69, the company’s focus on data analytics and personalised care aligns with sector trends. Analyst ratings lean towards underperform (4.0), but sentiment from sources like Seeking Alpha highlights attractive valuations amid recovery, with AI integration as a key catalyst.

Elevance Health (ELV)

Elevance Health, formerly Anthem, boasts a forward P/E of 8.86 and price-to-book of 1.59, underscoring deep value. Closing at $309.57 (up 4.79%), its 52-week range spans $273.71 to $567.26, with a market cap of $69.7 billion. Forward EPS is pegged at $34.95, supported by diversified operations that weathered recent challenges. Buy-rated at 1.7, the firm is seen as a powerhouse in overcoming utilisation pressures, per expert commentary from Baker Donelson and KPMG in Modern Healthcare’s mid-2025 M&A review.

The Cigna Group (CI)

The Cigna Group trades at a forward P/E of 9.48 and price-to-book of 1.97, with shares at $296.86 (up 2.24%) and a market cap of $79.2 billion. Its 52-week range is $256.89 to $370.83, and forward EPS stands at $31.32. Analyst consensus rates it a buy (1.7), buoyed by stable membership and pharmacy benefits strength. IndexBox reports from Q2 2025 earnings indicate sector resilience, with firms like Cigna beating expectations despite headwinds.

Centene Corporation (CNC)

Centene offers extreme value at a forward P/E of 4.05 and price-to-book of 0.51, closing at $28.49 (up 5.79%) with a market cap of $14.0 billion. The 52-week range is $25.08 to $80.59, reflecting volatility. Forward EPS is $7.04, and while rated a hold (2.6), its focus on government-sponsored plans positions it for Medicaid expansion benefits. PharmiWeb’s August 2025 analysis notes untapped opportunities in healthcare IT integration.

Molina Healthcare (MOH)

Molina Healthcare’s forward P/E of 6.51 and price-to-book of 1.96 make it another standout, with shares at $167.49 (up 4.92%) and a market cap of $9.1 billion. The 52-week range is $151.95 to $365.23. Forward EPS is $25.71, with a hold rating (2.6). Its emphasis on underserved populations aligns with trends in personalised care, as per Mondaq’s insights on AI investment in healthcare.

Investment Implications and Risks

The undervaluation in these stocks could yield significant upside, particularly if MLRs stabilise and premium hikes materialise. KFF data suggests median requested premium increases of 18% for 2026 ACA filings, providing margin relief. Analyst-led forecasts, such as those from consensus models, project free cash flow yields of 9–10% for the group, outpacing the S&P 500.

However, risks persist: elevated MLRs (e.g., UNH’s recent 89.4%), cybersecurity threats, and regulatory changes like those flagged in PwC’s outlook. HIT Consultant’s trends for 2025 emphasise consumer-centred strategies to mitigate these.

In summary, healthcare’s discounted multiples relative to the S&P 500 present a rare opportunity. Investors eyeing long-term compounding should consider these managed care names, blending value with growth in a resilient sector.

References

• Bain & Company. (2024). Global Healthcare Private Equity Report 2025: Year in Review and Outlook. Retrieved from https://www.bain.com/insights/year-in-review-and-outlook-global-healthcare-private-equity-report-2025/
• Fidelity. (2024). Outlook: Health Care. Retrieved from https://www.fidelity.com/learning-center/trading-investing/outlook-health-care
• HIT Consultant. (2025, August 14). Four Trends Reshaping the Healthcare Landscape in 2025. Retrieved from https://hitconsultant.net/2025/08/14/beyond-the-clinic-4-trends-reshaping-the-healthcare-landscape-in-2025
• IndexBox. (2025, Q2). Healthcare Providers & Services Sector Resilience. Retrieved from https://www.indexbox.io/blog/healthcare-providers-services-sector-resilience-in-q2-2025/
• Modern Healthcare. (2025). Mid-Year Insight: Healthcare M&A 2025. Retrieved from https://www.modernhealthcare.com/providers/mh-2025-healthcare-ma-mid-year-insight/
• Morningstar. (2024). Healthcare Valuations Look Attractive Across Almost All Industries. Retrieved from https://www.morningstar.com/stocks/healthcare-valuations-look-attractive-across-almost-all-industries
• Mondaq. (2025). Artificial Intelligence in the Healthcare Sector: Investment Trends. Retrieved from https://www.mondaq.com/india/healthcare/1664788/artificial-intelligence-in-the-healthcare-sector-investment-trends
• PharmiWeb. (2025, August 14). Investors Signal New Era of Discipline in Healthcare IT. Retrieved from https://pharmiweb.com/press-release/2025-08-14/investors-signal-new-era-of-deal-discipline-in-healthcare-it-post-boom-challenges-and-untapped-oppo
• PwC. (2025). Health Industries: Global M&A Outlook. Retrieved from https://www.pwc.com/gx/en/services/deals/trends/health-industries.html
• Seeking Alpha. (2025). IHF: Attractive US Healthcare Valuations Amid Sector’s Recovery. Retrieved from https://seekingalpha.com/article/4814248-ihf-attractive-us-healthcare-valuations-amid-sectors-recovery
• SVB. (2025). Healthcare Investments & Exits Report. Retrieved from https://www.svb.com/trends-insights/reports/healthcare-investments-and-exits/
• U.S. Bank. (2025). Healthcare Stocks Remain a Relative Value Play. Retrieved from https://www.usbank.com/investing/financial-perspectives/market-news/healthcare-stocks.html