The elite funds run by legendary investors such as Dan Loeb and David Tepper make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentive to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we will take a closer look at Humana Inc (NYSE:HUM) from the perspective of those investors.
Is Humana Inc (NYSE:HUM) undervalued? Investors who are in the know are in an optimistic mood. The number of long hedge fund bets moved up by two recently. At the end of this article we will also compare HUM to other stocks including Imperial Oil Limited (USA) (NYSEAMEX:IMO), Dollar General Corp. (NYSE:DG), and Fresenius Medical Care AG & Co. (ADR) (NYSE:FMS) to get a better sense of its popularity.
Follow Humana Inc (NYSE:HUM)
Follow Humana Inc (NYSE:HUM)
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
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Keeping this in mind, we’re going to check out the key action regarding Humana Inc (NYSE:HUM).
How have hedgies been trading Humana Inc (NYSE:HUM)?
At the end of September, 66 funds tracked by Insider Monkey held long positions in Humana, an increase of 3% from one quarter earlier. This is also the highest level achieved in terms of popularity over the last 5 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Glenview Capital, managed by Larry Robbins, holds the number one position in Humana Inc (NYSE:HUM). Glenview Capital has a $1.6856 billion position in the stock, comprising 12.1% of its 13F portfolio. The second largest stake is held by D E Shaw holding a $432.5 million position; 0.8% of its 13F portfolio is allocated to the stock. Remaining peers that hold long positions consist of Nick Niell’s Arrowgrass Capital Partners and Ricky Sandler’s Eminence Capital.
As one would reasonably expect, key hedge funds were breaking ground themselves. Third Point, managed by Dan Loeb, assembled the most outsized position in Humana Inc (NYSE:HUM). Third Point had $247.6 million invested in the company at the end of the quarter. Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital also initiated a $176.9 million position during the quarter. The following funds were also among the new HUM investors: Zach Schreiber’s Point State Capital, Roberto Mignone’s Bridger Management, and James Dinan’s York 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. We will take a look at Imperial Oil Limited (USA) (NYSEAMEX:IMO), Dollar General Corp. (NYSE:DG), Fresenius Medical Care AG & Co. (ADR) (NYSE:FMS), and Vale SA (ADR) (NYSE:VALE). This group of stocks’ market valuations resemble HUM’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IMO | 6 | 76445 | -3 |
| DG | 53 | 1173695 | 0 |
| FMS | 6 | 7036 | -1 |
| VALE | 27 | 287513 | 3 |
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $386 million, significantly lower than the $5.95 billion in Humana’s case. Dollar General Corp. (NYSE:DG) is the most popular stock in this table with 53 funds reporting long positions as of the end of September. On the other hand Imperial Oil Limited (USA) (NYSEAMEX:IMO) is the least popular one with only six bullish hedge fund positions. Compared to these stocks Humana Inc (NYSE:HUM) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers and new hedge funds are flocking into the stock, it may be a good idea to follow hedge funds into this merger arbitrage play.
