UnitedHealth has regulatory headwinds to get through in 2026, says DCLA's Sarat Sethi

2025-12-30_22-25 • 4m 32s
Jon Fortt (Anchor) 00:00.000
Well, joining me now is Sarath Sethi. He is managing director at DCLA and a CNBC contributor. Hey Sarath, let's start with UnitedHealth. Down 35% this year, the worst Dow performer. Anything in the trends around utilization or anything going to change the story next year?
Sarat Sethi (Managing Partner) 00:16.480
I really think there's some regulatory headwinds here that we have to get through. Margins have come down. So the company really has to kind of stabilize. We've got a new CEO in there. This one will take some time. I I think expectations were really side, this was the premier
Sarat Sethi (Managing Partner) 00:31.480
company trades at 19 times earnings. So I do think this will take be a workaround similar to if you have patients like people did with CVS. So this is more of an execution story and a regulatory overhang.
Jon Fortt (Anchor) 00:43.240
Coming in at second for the worst stock in the Dow is Salesforce, down 20% for the year and the S&P was up like 17. Uh it started to see a rebound lately up 15% this month, but software in general has been kind of out of favor. Can Salesforce buck that trend or as software goes
Jon Fortt (Anchor) 01:04.120
so goes Salesforce? I'm
Sarat Sethi (Managing Partner) 01:06.280
more excited about this one, John. I think the story here is that initially investors thought AI was going to eat the software companies for lunch. We think that's a different story. We think AI is actually going to enhance and help companies like sales Salesforce. Really what
Sarat Sethi (Managing Partner) 01:22.120
investors were looking for were sub-stack growth. We think that's going to come and we think a company like Salesforce is going to be a lot more efficient. And the recurring revenue nature of this business, that's something they're not getting credit for. It's trading at 16
Sarat Sethi (Managing Partner) 01:36.040
times cash. John, it hasn't traded this low in many years, and we do think this is a company you want to own going into the next few months. Another
Jon Fortt (Anchor) 01:44.240
challenging story in 2025 is Amazon. Yeah, it's up around 6% this year, but it's underperforming the others in the Mag 7. So, does the story remain the same for Amazon or do investors have to measure differently, perhaps in '26?
Sarat Sethi (Managing Partner) 02:02.560
You know, interestingly enough, Amazon, just taking on evaluation metrics, is now trading at 12.5 times cash flow, historically 15. But look at the tailwinds behind Amazon. Firstly, it benefits whether any part of the case-shaped retail economy. Secondly, AWS is doing really
Sarat Sethi (Managing Partner) 02:19.480
well. And then it's got other things like robotics that are getting you're not getting any credit for. And if you look at the Tesla, it's getting a lot of credit for robotics. Robotics at a company like Amazon is really going to enhance margins and help them grow and be a lot
Sarat Sethi (Managing Partner) 02:34.000
more efficient. Add that advertising, video, there are a lot of legs here for Amazon. And I think given the the amount of focus on the other Mag 6, this has been underappreciated, underowned, and I think this is another one that we really like and want to own into the next few
Sarat Sethi (Managing Partner) 02:49.880
months.
Jon Fortt (Anchor) 02:50.240
So a big part of the Amazon story, of course, is AWS and a big part of the AWS story is the custom silicon that they're working on. Project like Rener, the idea that they think they can do AI more efficiently for customers over time than some of their competitors can. Do
Jon Fortt (Anchor) 03:07.120
investors start to see a payout for that in 2026 or do they have to wait longer, you think?
Sarat Sethi (Managing Partner) 03:12.400
I think you're going to see it pretty soon. I mean, they're investing a lot internally. They also don't have to use the most enhanced chips of NVIDIA. So, if you think about where they need to be, I think they're at a big advantage. They're spending money in R&D, they're in
Sarat Sethi (Managing Partner) 03:25.920
these other areas, and they're all going to have this synergy effect that some of the other X6 don't really have. So, there's nobody out there that can replace Amazon. Yes, you got walmart.com on the retail side and you got Google on the AWS side. But if you take this company as
Sarat Sethi (Managing Partner) 03:40.720
a whole, I think that some of the parts is worth a lot more. And once they get everything working together, John, I think this 12 and a half is going to is going to move up. And in addition, the earnings growth are going to move up. So, I do think Amazon out of all the six, all
Sarat Sethi (Managing Partner) 03:54.320
the seven is in the best place. So, in
Jon Fortt (Anchor) 03:57.000
a way, if the go-go excitement about debt and spending in infrastructure cools off and the attention turns to value, perhaps Amazon has a different sort of story to tell. Completely.
Sarat Sethi (Managing Partner) 04:08.640
And if you've looked at Amazon historically, especially over the last 3, 5 years, they have a lot of levers, right? They can cut back on CapEx and still be cash flow positive. They can increase spend in other areas that they they think are going to be beneficial to their
Sarat Sethi (Managing Partner) 04:22.360
customers and to their investors. So out of all of them, if you think about all the arrows they have, I think they have the best opportunity going into the next couple years.