Was The Smart Money Right About Humana Inc (HUM)?

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. Insider Monkey finished processing 873 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of June 30th, 2021. In this article we are going to take a look at smart money sentiment towards Humana Inc (NYSE:HUM).

Is Humana Inc (NYSE:HUM) a splendid stock to buy now? The best stock pickers were turning bullish. The number of bullish hedge fund bets moved up by 6 recently. Humana Inc (NYSE:HUM) was in 59 hedge funds’ portfolios at the end of June. The all time high for this statistic is 75. Our calculations also showed that HUM isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 79 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.

Rajiv Jain of GQG Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. We check out articles like Warren Buffett’s 3 money saving tips that provide inflation and volatility hedges. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let’s analyze the key hedge fund action encompassing Humana Inc (NYSE:HUM).

Do Hedge Funds Think HUM Is A Good Stock To Buy Now?

At second quarter’s end, a total of 59 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from the previous quarter. On the other hand, there were a total of 73 hedge funds with a bullish position in HUM a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Rajiv Jain’s GQG Partners has the number one position in Humana Inc (NYSE:HUM), worth close to $537.7 million, accounting for 1.6% of its total 13F portfolio. The second largest stake is held by Diamond Hill Capital, managed by Ric Dillon, which holds a $503.5 million position; 1.9% of its 13F portfolio is allocated to the company. Remaining peers with similar optimism comprise Ken Griffin’s Citadel Investment Group, Andreas Halvorsen’s Viking Global and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Iron Triangle Partners allocated the biggest weight to Humana Inc (NYSE:HUM), around 8.28% of its 13F portfolio. BloombergSen is also relatively very bullish on the stock, earmarking 6.37 percent of its 13F equity portfolio to HUM.

Consequently, key hedge funds were breaking ground themselves. Viking Global, managed by Andreas Halvorsen, created the biggest position in Humana Inc (NYSE:HUM). Viking Global had $260.4 million invested in the company at the end of the quarter. Kevin Molloy’s Iron Triangle Partners also made a $80.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Anand Parekh’s Alyeska Investment Group, Zach Schreiber’s Point State Capital, and Kevin Parker’s Sustainable Insight Capital Management.

Let’s check out hedge fund activity in other stocks similar to Humana Inc (NYSE:HUM). These stocks are KE Holdings Inc (NYSE:BEKE), CrowdStrike Holdings, Inc. (NASDAQ:CRWD), NXP Semiconductors NV (NASDAQ:NXPI), Honda Motor Co Ltd (NYSE:HMC), Global Payments Inc (NYSE:GPN), Twitter Inc (NYSE:TWTR), and Banco Bradesco SA (NYSE:BBD). This group of stocks’ market valuations are similar to HUM’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 47.4 hedge funds with bullish positions and the average amount invested in these stocks was $3278 million. That figure was $3257 million in HUM’s case. Twitter Inc (NYSE:TWTR) is the most popular stock in this table. On the other hand Honda Motor Co Ltd (NYSE:HMC) is the least popular one with only 10 bullish hedge fund positions. Humana Inc (NYSE:HUM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HUM is 64.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 26.3% in 2021 through October 29th and beat the market again by 2.3 percentage points. Unfortunately HUM wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on HUM were disappointed as the stock returned 4.8% since the end of June (through 10/29) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.