Is Humana Inc (NYSE:HUM) a good stock to buy now? The stock has done very well so far this year, gaining around 40% year-to-date. The Wall Street Journal reported on Saturday that Aetna Inc (NYSE:AET) has made a takeover proposal to Humana Inc (NYSE:HUM), though the report did not share the details of the proposal. Earlier last week another health insurance merger was discussed, as CIGNA Corporation (NYSE:CI) was offered a takeover proposal by Anthem Inc (NYSE:ANTM), which was rejected by CIGNA. The report suggested that the merger plans by health insurance companies are due to President Barack Obama’s national healthcare reform law. In Humana’s case, a takeover is not necessarily a big surprise; in fact, we ranked the company as the top takeover target being bet on by hedge funds earlier this year.
We don’t just track the latest moves of hedge funds. We are, in fact, more interested in their 13F filings, which we use to determine the top 15 small-cap stocks held by the funds we track. We gather and share this information based on 16 years of research which showed that these 15 most popular small-cap picks have a great potential to outperform the market, beating the S&P 500 Total Return Index by nearly one percentage point per month in backtests, and easily beating the most popular large-cap picks of funds, which nonetheless get the majority of their collective capital. Why pay fees to invest in both the best and worst ideas of a particular hedge fund when you can simply mimic only the very best ideas of the best fund managers on your own? Since the beginning of forward testing in August 2012, the Insider Monkey small-cap strategy has outperformed the market every year, returning 142%, nearly 2.5 times greater returns than the S&P 500 during the same period (see more details).
So how do hedge funds feel about Humana Inc (NYSE:HUM)’s stock and is now the right time to buy it? Hedge fund sentiment gives more insight into a stock than many people might suspect, as it provides the perspective of many experienced hedge fund managers all at once. That’s the reason behind considering hedge fund sentiment as a key parameter in tracking a stock. For Humana Inc (NYSE:HUM), hedge funds were not overly bullish in the first quarter. The number of hedge fund positions in the stock dropped to 46 at the end of the first quarter from 49 at the end of 2014, a 6% reduction in hedge fund positions.
Insider trading is another parameter we pay close attention to, as academic studies have shown a correlation between insider buying and positive stock performance. Lets take a look at insider trading for Humana to get more insight into the stock. There were no insider purchase of the stock in the first quarter of 2015, but there were numerous insider sales filed during the same period. This shows that insider sentiment is negative for the stock, though insider selling is not as strong an indicator as insider buying. Sure enough, the stock has grown by around 40% since the beginning of the year despite many insider sales.
So is this stock a buy at the moment? Keeping this in mind, we’re going to take a look at the recent hedge fund activity regarding Humana Inc (NYSE:HUM).
How have hedgies been trading Humana Inc (NYSE:HUM)?
Heading into the second quarter, a total of 46 of the hedge funds tracked by Insider Monkey were bullish in this stock, a change of -6% from a quarter earlier. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings while there were other hedge fund managers who opted to sell out of their stakes in the company.
According to Insider Monkey’s database, Larry Robbins‘ Glenview Capital had the largest position in Humana Inc (NYSE:HUM), with 5 million shares worth close to $893 million, corresponding to 4.1% of its total 13F portfolio. The next most bullish hedge fund manager is AQR Capital Management, led by Cliff Asness, holding 1.9 million shares worth $344.5 million, which accounts for 0.8% of its 13F portfolio. Other bullish hedge fund managers on the stock include Andreas Halvorsen‘s Viking Global, Doug Silverman and Alexander Klabin’s Senator Investment Group, and David Stemerman’s Conatus Capital Management.
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Heading into the second quarter, as pointed out above, Humana Inc (NYSE:HUM) has faced falling interest from many hedge funds we track. There are some hedge fund managers who moved out of the stock completely in the first quarter. Stephen Mandel‘s Lone Pine Capital leads the way, selling around 1.9 million shares which were valued at $274.6 million at the end of the fourth quarter. Following Lone Pine Capital is Benjamin A. Smith of Laurion Capital Management, as Smith had sold 1.5 million shares which were valued at $215.5 million. These behaviors on the stock should definitely be taken into consideration.
While the stock has done pretty well so far this year, negative hedge fund sentiment and insider sentiment makes it difficult for us to recommend a buy on this stock, with the further appreciation of its shares factoring against it. We don’t recommend buying the stock at the moment, even in light of the takeover rumors.
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