Coronavirus is probably the #1 concern in investors’ minds right now. It should be. We estimate that COVID-19 will kill around 5 million people worldwide and there is a 3.3% probability that Donald Trump will die from the new coronavirus (read the details). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Humana Inc (NYSE:HUM) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.
Is Humana Inc (NYSE:HUM) a buy, sell, or hold? Money managers are turning bullish. The number of long hedge fund positions improved by 10 lately. Our calculations also showed that HUM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind let’s review the fresh hedge fund action surrounding Humana Inc (NYSE:HUM).
What have hedge funds been doing with Humana Inc (NYSE:HUM)?
Heading into the first quarter of 2020, a total of 75 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards HUM over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Humana Inc (NYSE:HUM), which was worth $1081.7 million at the end of the third quarter. On the second spot was Lone Pine Capital which amassed $539.8 million worth of shares. AQR Capital Management, Glenview Capital, and Two Sigma Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position MIC Capital Partners allocated the biggest weight to Humana Inc (NYSE:HUM), around 9.72% of its 13F portfolio. Tavio Capital is also relatively very bullish on the stock, designating 9.23 percent of its 13F equity portfolio to HUM.
Now, specific money managers have been driving this bullishness. Rock Springs Capital Management, managed by Kris Jenner, Gordon Bussard, Graham McPhail, assembled the largest position in Humana Inc (NYSE:HUM). Rock Springs Capital Management had $67.8 million invested in the company at the end of the quarter. Andreas Halvorsen’s Viking Global also made a $38 million investment in the stock during the quarter. The following funds were also among the new HUM investors: Christopher James’s Partner Fund Management, Mubadala Investment’s MIC Capital Partners, and Jacob Doft’s Highline Capital Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Humana Inc (NYSE:HUM) but similarly valued. These stocks are Waste Management, Inc. (NYSE:WM), Aon plc (NYSE:AON), Kinder Morgan Inc (NYSE:KMI), and Capital One Financial Corp. (NYSE:COF). This group of stocks’ market values are closest to HUM’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WM | 32 | 3261844 | -20 |
| AON | 51 | 2627235 | 6 |
| KMI | 40 | 1360313 | 2 |
| COF | 50 | 2041230 | 3 |
| Average | 43.25 | 2322656 | -2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 43.25 hedge funds with bullish positions and the average amount invested in these stocks was $2323 million. That figure was $4982 million in HUM’s case. Aon plc (NYSE:AON) is the most popular stock in this table. On the other hand Waste Management, Inc. (NYSE:WM) is the least popular one with only 32 bullish hedge fund positions. Compared to these stocks Humana Inc (NYSE:HUM) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks also gained 0.1% in 2020 through March 2nd and beat the market by 4.1 percentage points. Unfortunately HUM wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on HUM were disappointed as the stock returned -5.8% during the first two months of 2020 (through March 2nd) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
