In this article we will check out the progression of hedge fund sentiment towards Humana Inc (NYSE:HUM) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is Humana Inc (NYSE:HUM) a buy right now? Investors who are in the know are in a pessimistic mood. The number of long hedge fund bets were cut by 5 in recent months. Our calculations also showed that HUM isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). HUM was in 70 hedge funds’ portfolios at the end of the first quarter of 2020. There were 75 hedge funds in our database with HUM positions at the end of the previous quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72% since March 2017 and outperformed the S&P 500 ETFs by more than 44 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
James Dinan of York Capital Management
At Insider Monkey 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 believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we asked astrophysicist Neil deGrasse Tyson about Tesla, Elon Musk, and his top stock picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a gander at the fresh hedge fund action surrounding Humana Inc (NYSE:HUM).
What does smart money think about Humana Inc (NYSE:HUM)?
Heading into the second quarter of 2020, a total of 70 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards HUM over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Humana Inc (NYSE:HUM) was held by Renaissance Technologies, which reported holding $1108.2 million worth of stock at the end of September. It was followed by Lone Pine Capital with a $679.6 million position. Other investors bullish on the company included AQR Capital Management, Maverick Capital, and Diamond Hill Capital. In terms of the portfolio weights assigned to each position MIC Capital Partners allocated the biggest weight to Humana Inc (NYSE:HUM), around 11.83% of its 13F portfolio. BloombergSen is also relatively very bullish on the stock, earmarking 8.25 percent of its 13F equity portfolio to HUM.
Because Humana Inc (NYSE:HUM) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there was a specific group of money managers that elected to cut their entire stakes heading into Q4. At the top of the heap, OZ Management said goodbye to the largest stake of the 750 funds tracked by Insider Monkey, worth about $80.3 million in stock. Roberto Mignone’s fund, Bridger Management, also said goodbye to its stock, about $45.6 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 5 funds heading into Q4.
Let’s now review hedge fund activity in other stocks similar to Humana Inc (NYSE:HUM). These stocks are Truist Financial Corporation (NYSE:TFC), Relx PLC (NYSE:RELX), Baxter International Inc. (NYSE:BAX), and The PNC Financial Services Group, Inc. (NYSE:PNC). This group of stocks’ market valuations match HUM’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TFC | 34 | 551498 | -1 |
| RELX | 5 | 97388 | -2 |
| BAX | 50 | 3209249 | 3 |
| PNC | 40 | 1263969 | -2 |
| Average | 32.25 | 1280526 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.25 hedge funds with bullish positions and the average amount invested in these stocks was $1281 million. That figure was $4247 million in HUM’s case. Baxter International Inc. (NYSE:BAX) is the most popular stock in this table. On the other hand Relx PLC (NYSE:RELX) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Humana Inc (NYSE:HUM) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 7.9% in 2020 through May 22nd but still managed to beat the market by 15.6 percentage points. Hedge funds were also right about betting on HUM as the stock returned 25.6% so far in Q2 (through May 22nd) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
