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Is UnitedHealth (UNH) Stock A Buy or Sell?

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After several tireless days we have finished crunching the numbers from nearly 900 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms' equity portfolios as of December 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards UnitedHealth Group Inc. (NYSE:UNH).

Is UnitedHealth (UNH) stock a buy or sell? The smart money was becoming more confident. The number of long hedge fund positions advanced by 2 in recent months. UnitedHealth Group Inc. (NYSE:UNH) was in 91 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 104. Our calculations also showed that UNH isn't among the 30 most popular stocks among hedge funds (click for Q4 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 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). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Third Point 2014 Q3 Investor Letter
Third Point 2014 Q3 Investor Letter

Dan Loeb of Third Point

At Insider Monkey we leave no stone unturned when looking for 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 hydrogen fuel cell 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 (or at the end of this article). Keeping this in mind we're going to take a peek at the latest hedge fund action regarding UnitedHealth Group Inc. (NYSE:UNH).

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

At the end of December, a total of 91 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 2% from the previous quarter. On the other hand, there were a total of 91 hedge funds with a bullish position in UNH a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

More specifically, Eagle Capital Management was the largest shareholder of UnitedHealth Group Inc. (NYSE:UNH), with a stake worth $1192.2 million reported as of the end of December. Trailing Eagle Capital Management was Lone Pine Capital, which amassed a stake valued at $1115.2 million. GQG Partners, 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 10.12% of its 13F portfolio. Abrams Bison Investments is also relatively very bullish on the stock, designating 8.12 percent of its 13F equity portfolio to UNH.

Consequently, specific money managers were leading the bulls' herd. Viking Global, managed by Andreas Halvorsen, assembled the most outsized position in UnitedHealth Group Inc. (NYSE:UNH). Viking Global had $979.7 million invested in the company at the end of the quarter. OrbiMed Advisors also initiated a $136.9 million position during the quarter. The other funds with brand new UNH positions are Dan Loeb's Third Point, Doug Silverman and Alexander Klabin's Senator Investment Group, and Jeremy Green's Redmile Group.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as UnitedHealth Group Inc. (NYSE:UNH) but similarly valued. These stocks are JPMorgan Chase & Co. (NYSE:JPM), Verizon Communications Inc. (NYSE:VZ), Adobe Inc. (NASDAQ:ADBE), Paypal Holdings Inc (NASDAQ:PYPL), salesforce.com, inc. (NYSE:CRM), The Walt Disney Company (NYSE:DIS), and Netflix, Inc. (NASDAQ:NFLX). This group of stocks' market caps resemble UNH's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position JPM,112,6967178,-6 VZ,67,10502830,2 ADBE,114,11927730,8 PYPL,147,15961182,-3 CRM,97,10576035,-9 DIS,144,16417240,32 NFLX,116,15633343,12 Average,113.9,12569363,5.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 113.9 hedge funds with bullish positions and the average amount invested in these stocks was $12569 million. That figure was $10778 million in UNH's case. Paypal Holdings Inc (NASDAQ:PYPL) is the most popular stock in this table. On the other hand Verizon Communications Inc. (NYSE:VZ) is the least popular one with only 67 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 48.3. 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 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 7% in 2021 through March 12th and surpassed the market again by 1.6 percentage points. Unfortunately UNH wasn't nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); UNH investors were disappointed as the stock returned 1.9% since the end of December (through 3/12) 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 most of these stocks already outperformed the market in 2020.

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

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