Express Scripts Holding Company (ESRX): Are Hedge Funds Right About This Stock?

Is Express Scripts Holding Company (NASDAQ:ESRX) a buy here? Hedge funds are taking a pessimistic view. The number of bullish hedge fund bets went down by 13 recently.

In the eyes of most stock holders, hedge funds are seen as underperforming, old investment vehicles of yesteryear. While there are over 8000 funds in operation at present, we at Insider Monkey choose to focus on the upper echelon of this group, about 450 funds. Most estimates calculate that this group oversees the lion’s share of all hedge funds’ total asset base, and by paying attention to their top equity investments, we have spotted a number of investment strategies that have historically outperformed the broader indices. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have outclassed the S&P 500 index by 24 percentage points in 7 months (see all of our picks from August).

Just as integral, bullish insider trading sentiment is a second way to parse down the investments you’re interested in. Just as you’d expect, there are lots of reasons for a bullish insider to drop shares of his or her company, but only one, very obvious reason why they would initiate a purchase. Various academic studies have demonstrated the market-beating potential of this method if you know what to do (learn more here).

With all of this in mind, it’s important to take a glance at the recent action surrounding Express Scripts Holding Company (NASDAQ:ESRX).

Hedge fund activity in Express Scripts Holding Company (NASDAQ:ESRX)

Heading into 2013’s second quarter, a total of 68 of the hedge funds we track were long in this stock, a change of -16% from the fourth quarter. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes substantially.

Of the funds we track, Brave Warrior Capital, managed by Glenn Greenberg, holds the most valuable position in Express Scripts Holding Company (NASDAQ:ESRX). Brave Warrior Capital has a $230.4 million position in the stock, comprising 12.2% of its 13F portfolio. On Brave Warrior Capital’s heels is Brookside Capital, managed by Bain Capital, which held a $226.5 million position; 5% of its 13F portfolio is allocated to the stock. Some other hedgies that are bullish include Michael Lowenstein’s Kensico Capital, Leon Cooperman’s Omega Advisors and Bob Peck and Andy Raab’s FPR Partners.

Due to the fact that Express Scripts Holding Company (NASDAQ:ESRX) has faced a declination in interest from the entirety of the hedge funds we track, it’s safe to say that there were a few hedgies that slashed their positions entirely at the end of the quarter. Interestingly, Howard Guberman’s Gruss Asset Management dropped the largest position of the “upper crust” of funds we track, worth an estimated $129.6 million in call options. Eric Bannasch’s fund, Cadian Capital, also said goodbye to its stock, about $78.6 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 13 funds at the end of the quarter.

What have insiders been doing with Express Scripts Holding Company (NASDAQ:ESRX)?

Bullish insider trading is best served when the primary stock in question has seen transactions within the past six months. Over the latest half-year time period, Express Scripts Holding Company (NASDAQ:ESRX) has seen 1 unique insiders buying, and 6 insider sales (see the details of insider trades here).

Let’s check out hedge fund and insider activity in other stocks similar to Express Scripts Holding Company (NASDAQ:ESRX). These stocks are Humana Inc (NYSE:HUM), Aetna Inc. (NYSE:AET), CIGNA Corporation (NYSE:CI), WellPoint, Inc. (NYSE:WLP), and UnitedHealth Group Inc. (NYSE:UNH). This group of stocks are in the health care plans industry and their market caps resemble ESRX’s market cap.