Were Hedge Funds Right About UnitedHealth Group Inc. (UNH)?

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding UnitedHealth Group Inc. (NYSE:UNH).

Is UnitedHealth Group Inc. (NYSE:UNH) a buy, sell, or hold? Investors who are in the know were becoming less confident. The number of long hedge fund positions went down by 2 recently. UnitedHealth Group Inc. (NYSE:UNH) was in 89 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 104. Our calculations still showed that UNH ranked #30 among the 30 most popular stocks among hedge funds (click for Q1 rankings).

To the average investor there are dozens of tools stock traders put to use to evaluate stocks. A couple of the most underrated tools are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the best picks of the top investment managers can outperform the S&P 500 by a healthy margin (see the details here). Also, our monthly newsletter’s portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

Boykin Curry of Eagle Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. Now we’re going to take a gander at the latest hedge fund action encompassing UnitedHealth Group Inc. (NYSE:UNH).

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

Heading into the second quarter of 2021, a total of 89 of the hedge funds tracked by Insider Monkey were long this stock, a change of -2% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards UNH over the last 23 quarters. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

Among these funds, GQG Partners held the most valuable stake in UnitedHealth Group Inc. (NYSE:UNH), which was worth $1225.6 million at the end of the fourth quarter. On the second spot was Eagle Capital Management which amassed $1212.9 million worth of shares. Lone Pine Capital, Viking Global, and Fisher Asset Management 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 Route One Investment Company allocated the biggest weight to UnitedHealth Group Inc. (NYSE:UNH), around 8.95% of its 13F portfolio. GuardCap Asset Management is also relatively very bullish on the stock, earmarking 7.91 percent of its 13F equity portfolio to UNH.

Judging by the fact that UnitedHealth Group Inc. (NYSE:UNH) has witnessed declining sentiment from the aggregate hedge fund industry, it’s safe to say that there lies a certain “tier” of money managers who were dropping their full holdings heading into Q2. Interestingly, Arthur B Cohen and Joseph Healey’s Healthcor Management LP cut the largest position of all the hedgies watched by Insider Monkey, totaling about $61.4 million in stock. Guy Shahar’s fund, DSAM Partners, also dropped its stock, about $25.2 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 2 funds heading into Q2.

Let’s also examine hedge fund activity in other stocks similar to UnitedHealth Group Inc. (NYSE:UNH). We will take a look at The Walt Disney Company (NYSE:DIS), Bank of America Corporation (NYSE:BAC), The Procter & Gamble Company (NYSE:PG), NVIDIA Corporation (NASDAQ:NVDA), The Home Depot, Inc. (NYSE:HD), Paypal Holdings Inc (NASDAQ:PYPL), and Intel Corporation (NASDAQ:INTC). This group of stocks’ market caps match UNH’s market cap.

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As you can see these stocks had an average of 96.4 hedge funds with bullish positions and the average amount invested in these stocks was $14187 million. That figure was $12091 million in UNH’s case. Paypal Holdings Inc (NASDAQ:PYPL) is the most popular stock in this table. On the other hand The Home Depot, Inc. (NYSE:HD) is the least popular one with only 68 bullish hedge fund positions. UnitedHealth Group Inc. (NYSE:UNH) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for UNH is 42.7. 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 negative signal and 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 25.8% in 2021 through August 6th and surpassed the market again by 6.7 percentage points. Unfortunately UNH wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); UNH investors were disappointed as the stock returned 12% since the end of March (through 8/6) 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 most of these stocks already outperformed the market in 2021.

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

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