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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 HUM a good stock to buy now? Humana Inc (NYSE:HUM) has seen a decrease in support from the world's most elite money managers recently. Humana Inc (NYSE:HUM) was in 61 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 75. There were 73 hedge funds in our database with HUM positions at the end of the second quarter. Our calculations also showed that HUM isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
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 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 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.
Michael Gelband of ExodusPoint Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. 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 website. Now let's take a peek at the recent hedge fund action surrounding Humana Inc (NYSE:HUM).
How are hedge funds trading Humana Inc (NYSE:HUM)?
Heading into the fourth quarter of 2020, a total of 61 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -16% from the previous quarter. On the other hand, there were a total of 65 hedge funds with a bullish position in HUM a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Lone Pine Capital has the most valuable position in Humana Inc (NYSE:HUM), worth close to $899.7 million, corresponding to 3.9% of its total 13F portfolio. The second largest stake is held by Renaissance Technologies, with a $661.5 million position; the fund has 0.7% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism comprise Rajiv Jain's GQG Partners, Cliff Asness's AQR Capital Management and Ric Dillon's Diamond Hill Capital. In terms of the portfolio weights assigned to each position BloombergSen allocated the biggest weight to Humana Inc (NYSE:HUM), around 8.27% of its 13F portfolio. Maverick Capital is also relatively very bullish on the stock, setting aside 5.12 percent of its 13F equity portfolio to HUM.
Seeing as Humana Inc (NYSE:HUM) has witnessed declining sentiment from the entirety of the hedge funds we track, it's easy to see that there lies a certain "tier" of hedge funds that decided to sell off their entire stakes heading into Q4. It's worth mentioning that James Dinan's York Capital Management dropped the biggest position of the 750 funds followed by Insider Monkey, totaling an estimated $33.7 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also cut its stock, about $12 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 12 funds heading into Q4.
Let's go over 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 Boston Scientific Corporation (NYSE:BSX), Norfolk Southern Corp. (NYSE:NSC), General Electric Company (NYSE:GE), Moody's Corporation (NYSE:MCO), America Movil SAB de CV (NYSE:AMX), Applied Materials, Inc. (NASDAQ:AMAT), and Vale SA (NYSE:VALE). This group of stocks' market valuations are similar to HUM's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BSX,61,2536996,-5 NSC,47,715468,0 GE,45,2747958,-12 MCO,60,11434920,-1 AMX,15,132210,4 AMAT,59,2498740,1 VALE,35,1628334,6 Average,46,3099232,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 46 hedge funds with bullish positions and the average amount invested in these stocks was $3099 million. That figure was $4804 million in HUM's case. Boston Scientific Corporation (NYSE:BSX) is the most popular stock in this table. On the other hand America Movil SAB de CV (NYSE:AMX) is the least popular one with only 15 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 67.4. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and beat the market again by 16 percentage points. Unfortunately HUM wasn't nearly as popular as these 20 stocks and hedge funds that were betting on HUM were disappointed as the stock returned -2% since the end of September (through 12/2) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.