This articles title says a lot. It's a positive treatment on one of the nation's largest health insurers, United Healthcare (UNH). It notes that the stock is in a four-month slump, even though it recently reported better-than-expected quarterly financial results and raised its outlook for 2006. Since hitting a record high in December, after climbing more than 300 percent over five years, the shares have lost almost a quarter of their value. The piece blames the selloff on investors locking in profits and a bumpy start to the Medicare drug benefit launched January 1. Moreover, questions about the timing of stock-option grants to executives, including CEO William McGuire, have sparked an internal company review and drawn the attention of the Securities and Exchange Commission and Minnesota's attorney general. Even so, with a reasonable multiple and profits climbing faster than those of the broader market and rivals Aetna (AET) and WellPoint (WLP), it argues UNH looks attractive. UNH's CEO feels the stock is undervalued based on the company's financial strength, a sentiment echoed by analysts quoted in the piece.

Contrarian Takeaway:

While UNH's fundamental story is strong, the company has been stung by allegations that the board of directors may have inappropriately back dated option grants to executives in order to make them potentially worth more than they would have been otherwise. Although it hasn't affected the company's strong financial position yet, it has likely resulted in some worried investors taking profits, and that has weighed on the shares.

Technically the stock has been one of the strongest in the market since the beginning of 2000. Through the end of 2005, UNH gained more than 830 percent. That's a huge average gain of more than 56 percent annually. That fact, coupled with the company's strong financial results, caused analysts to pile in on the "buy" side. According to Zacks, there are currently 16 analysts that cover the stock. Nine of them have "strong buy" ratings on it. Another five maintain "buy" ratings. The last two have "hold" ratings. Not one "sell" or "strong sell" rating exists.

Option players and short sellers are generally aligned on the optimistic side as well. That's not unwarranted for a stock that's been so technically and fundamentally strong. But in the scenario where the technicals begin to weaken and some fundamental questions arise, it creates a slippery slope. UNH is a great company and has been a great stock. But when optimism gets so lopsided, sometimes a stock's downturn can be exacerbated as expectations come down out of the clouds and become better aligned with reality.