Down 50% in 2025, I believe this S&P 500 stock fits the Warren Buffett mould perfectly

Warren Buffettâs investment company, Berkshire Hathaway, is sitting on about $340bn in cash right now. So we could potentially see the legendary stock market investor make a major trade before he retires at the end of the year.

Now, thereâs no guarantee heâll put this cash to work, of course. But hereâs a look at an S&P 500 stock that I believe fits the Buffett mould.

This S&P 500 stock has tanked

The stock I want to highlight today is UnitedHealth (NYSE: UNH), the largest health insurance company in the US (and the world).

Listed on the New York Stock Exchange, it currently trades for $241. Thatâs more than 50% below the level it was trading at at the start of the year.

A high-quality company on sale

So why do I think Buffett should be interested in this stock? Well, there are a few reasons.

For a start, we know that Buffett loves insurance companies (theyâre very much in his âcircle of competenceâ). Over the decades, heâs invested in many different insurers including GEICO, General Re, Chubb, and Alleghany. Itâs worth noting here that he has actually owned UnitedHealth stock in the past (for about three years between 2006 and 2009). So I imagine he knows this company very well.

Secondly, we know he likes to invest in high-quality businesses that are out of favour and offer value. Thatâs what we have here. Over the long term, this insurance company has generated a huge amount of wealth for investors, thanks to its high return on equity (five-year average of 24%) and strong balance sheet. However, this year, it has faced some challenges and its share price has fallen significantly, leaving the stock on a price-to-earnings (P/E) ratio of just 13.5.

Third, he could buy a significant stake in the company. Currently, UnitedHealth has a market cap of $218bn. Thatâs less than the value of the cash on Berkshireâs books. So, he could buy the whole company if he wanted to and become the owner of the business (Buffett likes to think as a business owner and not a stock market speculator).

Short-term challenges

Itâs worth pointing out that Buffett hasn’t given any indication of being interested in buying it and I’m only speculating. Plus, he may be put off by the challenges the insurance company is facing right now. This year, it has lowered its 2025 earnings guidance on several occasions due to higher demand for healthcare, increased medical costs, suboptimal insurance pricing, and some other issues. These issues could persist in the near term. For the stock to rebound, management will have to prove that itâs on top of them.

Given this companyâs long-term track record and current valuation, however, I wouldnât be surprised if we suddenly heard that Buffett was to grab a slice of this business in the months ahead. I see a quality company trading at a reasonable price and I think the stock is worth considering today.

I’ll stress that I’m not saying he will buy the stock. But I do believe it has a lot of the things he looks for in an investment.

The post Down 50% in 2025, I believe this S&P 500 stock fits the Warren Buffett mould perfectly appeared first on The Motley Fool UK.

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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.