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For many years now I have not been very happy with insurance companies. While their importance cannot be understated, it mostly feels like you are paying exorbitant premiums for a service you might rarely ever use. This perception changed recently when I got a chance to experience UnitedHealth's excellent healthcare services.

UnitedHealth is one of the few insurance providers that allow you to directly see a medical expert without getting a recommendation from a primary physician first. A closer look at UnitedHealth revealed a company that is very profitable with $3.3 billion in profits during 2005, a 27% increase when compared to 2004 earnings of $2.59 billion. UnitedHealth also recently increased its earnings forecast for 2006 which is a very positive sign.

UnitedHealth has grown its membership base aggressively over the last few years by providing health insurance services to large companies and currently has about 25 million members. All this growth has not gone unnoticed and the stock price has almost doubled in the last two years from $30 to $59.42 per share. However with a current P/E of 23.95, P/S of 1.61 and 2006 earnings growth projected to be between 21% and 23%, the stock looks reasonably valued.

UnitedHealth's slightly larger cousin is WellPoint (WLP) with about 28 million members. CIGNA (NYSE:CI) is a much smaller rival which sports a very attractive valuation but not a strong balance sheet.

The Good:

* A profitable company that generated $3.3 billion in profits last year.
* UnitedHealth recently increased its 2006 earnings forecast.
* Attractive current valuation with a Price/Sales ratio of just 1.61.

The Bad:

* A whopping $9.78 billion in goodwill is listed under assets on the balance sheet.
* Strong competition from WellPoint which recently reported excellent fourth quarter results.

UNH 1-yr Chart

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Source: UnitedHealth: A Healthy-looking Investment (UNH, WLP, CI)