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Is Humana (HUM) Stock A Buy or Sell?

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Debasis Saha
·6 min read
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Is Humana Inc (NYSE:HUM) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Is Humana (HUM) stock a buy or sell? Prominent investors were getting less optimistic. The number of long hedge fund positions fell by 2 recently. Humana Inc (NYSE:HUM) was in 59 hedge funds' portfolios at the end of the fourth quarter of 2020. 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 Q4 rankings). There were 61 hedge funds in our database with HUM positions at the end of the third quarter.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here).

Ric Dillon Diamond Hill Capital
Ric Dillon Diamond Hill Capital

Ric Dillon of Diamond Hill Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. Recently Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best biotech stocks to invest in to pick the next stock 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 (or at the end of this article). Now let's view the fresh hedge fund action surrounding Humana Inc (NYSE:HUM).

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

At Q4's end, a total of 59 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from the previous quarter. On the other hand, there were a total of 75 hedge funds with a bullish position in HUM a year ago. With hedgies' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Is HUM A Good Stock To Buy?
Is HUM A Good Stock To Buy?

The largest stake in Humana Inc (NYSE:HUM) was held by Lone Pine Capital, which reported holding $618.8 million worth of stock at the end of December. It was followed by GQG Partners with a $482.5 million position. Other investors bullish on the company included Renaissance Technologies, Diamond Hill Capital, and AQR Capital Management. In terms of the portfolio weights assigned to each position BloombergSen allocated the biggest weight to Humana Inc (NYSE:HUM), around 6.95% of its 13F portfolio. Welch Capital Partners is also relatively very bullish on the stock, earmarking 4.03 percent of its 13F equity portfolio to HUM.

Since Humana Inc (NYSE:HUM) has witnessed bearish sentiment from the smart money, logic holds that there is a sect of hedge funds that decided to sell off their entire stakes last quarter. Interestingly, Aaron Cowen's Suvretta Capital Management dropped the biggest position of all the hedgies monitored by Insider Monkey, comprising close to $67.1 million in stock. Michael Rockefeller and Karl Kroeker's fund, Woodline Partners, also dumped its stock, about $22.5 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 2 funds last quarter.

Let's also examine hedge fund activity in other stocks similar to Humana Inc (NYSE:HUM). We will take a look at Illumina, Inc. (NASDAQ:ILMN), Westpac Banking Corporation (NYSE:WBK), Banco Santander, S.A. (NYSE:SAN), DuPont de Nemours Inc (NYSE:DD), Regeneron Pharmaceuticals Inc (NASDAQ:REGN), Dollar General Corp. (NYSE:DG), and ICICI Bank Limited (NYSE:IBN). This group of stocks' market values are closest to HUM's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ILMN,45,1747647,1 WBK,3,29715,-1 SAN,14,415472,0 DD,60,6277336,-1 REGN,46,1330342,2 DG,57,1677239,1 IBN,29,1080794,5 Average,36.3,1794078,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.3 hedge funds with bullish positions and the average amount invested in these stocks was $1794 million. That figure was $3966 million in HUM's case. DuPont de Nemours Inc (NYSE:DD) is the most popular stock in this table. On the other hand Westpac Banking Corporation (NYSE:WBK) is the least popular one with only 3 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 75.7. 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 positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and beat the market again by 0.8 percentage points. Unfortunately HUM wasn't nearly as popular as these 30 stocks and hedge funds that were betting on HUM were disappointed as the stock returned -0.1% since the end of December (through 3/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 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.

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