Five Healthcare Plan Providers You Should Buy Now

The health insurance industry overall has been one of the best performing sectors not only this year, but for the past five years. With news of mergers and acquisitions in the space becoming almost a routine phenomenon, investors in most of these companies have seen the value of their holdings increasing at an impressive rate month after month. However, there are also a large number of investors who missed the trend initially and have been contemplating investing in the sector ever since, especially after two of the largest names in the space announced large value acquisitions recently. To help such investors, we at Insider Monkey decided to look at the latest portfolio data submitted by the funds we cover in our database and figure out health insurance stocks, which smart money favors the most. Read further to know which healthcare plan providers made it to our list.

We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 50 most popular large-cap stocks among hedge funds had a monthly alpha of about 6 basis points per month between 1999 and 2012; however the 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated 10 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas. We have been tracking the performance of these stocks since the end of August 2012 in real time and these stocks beat the market by over 60 percentage points (118% return vs. S&P 500’s 57.6% gain) over the last 36 months (see the details here).

5. CVS Health Corp (NYSE:CVS)

Investors with Long Positions (as of June 30): 57

Aggregate Value of Investors’ Holdings (as of June 30): $2.52 Billion

Rhode Island-based CVS Health Corp (NYSE:CVS) saw its popularity among hedge funds decline marginally during the second quarter, when its shares remained largely flat, with the number of hedge funds tracked by us that reported a stake in the company coming down by two. However, the aggregate value of investors’ holdings in the company saw a slight increase of $32 million during the same period. Although the recent market volatility has shaved off a large amount of gains, shares of CVS Health Corp (NYSE:CVS) are still trading in the green for the year. The company recently announced that it has reached a $48 million settlement in a lawsuit against it which alleged that it had fraudulently concealed a big loss of revenue in its pharmacy benefits management business and its shares nosedived after this came to light. On September 22, the company announced that it has begun private exchange offers for eligible holders to exchange new 4.75% Senior Notes due 2022 and new 5.00% Senior Notes due 2024. Cliff Asness‘ AQR Capital Management was the largest shareholder of the company at the end of June among the funds tracked by us, owning slightly above 4.8 million shares.

4. Anthem Inc (NYSE:ANTM)

Investors with Long Positions (as of June 30): 60

Aggregate Value of Investors’ Holdings (as of June 30): $3.02 Billion

Anthem Inc (NYSE:ANTM) has been in the news continuously ever since it announced on July 24 that it will be acquiring CIGNA Corporation (NYSE:CI) in a  $48 billion deal. Although shares of the company rose by 6.7% during the second quarter and the ownership of the company among hedge funds in our database also rose by nine during the same period, the aggregate value of hedge funds’ holding in the company declined by 4.16% during the same period. On September 22, Anthem Inc (NYSE:ANTM)’s CEO, Joseph Swedish, defended the Cigna deal, against allegations that it would make the former a dominant player in the health insurance market and create a competitive imbalance, in front of a Senate Judiciary subcommittee hearing in Washington. Last month the company announced the appointment of Brian Griffin as executive vice president and president for Commercial and Specialty Business. Andreas Halvorsen‘s Viking Global initiated a stake in Anthem during the second quarter by acquiring slightly over 1.9 million shares.

3. UnitedHealth Group Inc (NYSE:UNH)

Investors with Long Positions (as of June 30): 61

Aggregate Value of Investors’ Holdings (as of June 30): $2.96 Billion

Moving on, after rising by nearly 20% during the first three months of the year, shares of the largest health insurer in United States have remained in the $110-$120 range for the most part of 2015. During the second quarter, when shares of UnitedHealth Group Inc (NYSE:UNH) rose marginally by 3.6%, its ownership among hedge funds tracked by us climbed up by three and the aggregate value of investors’ holdings also saw a modest increase of $63 million. Several analysts, that cover the health insurance space, rate UnitedHealth Group Inc (NYSE:UNH) better than its peers owing to its impressive debt to cash flow multiple of 2.0 and its consistent growth. For fiscal year 2015 the company expects EPS to grow by 9% and revenue to advance by 18% year-over-year and for next year it expects them to grow by 16% each. AQR Capital Management turned out to be one of the largest shareholders of UnitedHealth Group as well, having more than doubled its stake to slightly above 4 million shares during the second quarter.

2. Express Scripts Holding Company (NASDAQ:ESRX)

Investors with Long Positions (as of June 30): 62

Aggregate Value of Investors’ Holdings (as of June 30): $3.8 Billion

Express Scripts Holding Company (NASDAQ:ESRX) is one of the few healthcare plan providers whose shares have remained lackluster throughout the year and are currently trading in red. It seems hedge funds had anticipated this performance and that’s why the number of investors with long positions declined by two during the April-June period, even though its stock went up by 2.6% and the aggregate value of investors’ stakes in the company saw a 2.8% rise during the same period. Express Scripts Holding Company (NASDAQ:ESRX) recently named Eric Slusser as the new CFO and executive vice president. On September 13, analysts at Deutsche Bank reiterated their ‘Hold’ rating and $96 price target on the stock, which represents a potential upside of nearly 20% from its current trading price. Glenn Greenberg‘s Brave Warrior Capital more than halved its stake in Express Scripts Holding Company during the second quarter to around 1.74 million shares.

1. Aetna Inc (NYSE:AET)

Investors with Long Positions (as of June 30): 80

Aggregate Value of Investors’ Holdings (as of June 30): $4.03 Billion

Boasting returns of almost 20% during the second quarter, it’s no surprise that Aetna Inc (NYSE:AET) turned out be one of the most popular stocks among hedge funds not only from the health insurance space, but overall as well. The number of hedge funds covered by us that disclosed a stake in the company increased by 30 during the quarter, while the aggregate value of investors’ holdings more than doubled in the same time frame. Although Aetna Inc (NYSE:AET)’s stock dropped by almost 10% in the days following the company’s July 3 announcement that it will be acquiring Humana Inc (NYSE:HUM) in a $34 billion deal, it has held on to the levels above $110 quite well since then. Along with Anthem CEO defending the Cigna deal, Aetna’s CEO, Mark Bertolini, also appeared before the Senate Judiciary subcommittee hearing in Washington on September 22 to defend the Humana deal against the same allegations of creating a competitive imbalance. On September 18,  Aetna’s stock was upgraded to ‘Buy’ from ‘Hold’ by analysts at Cantor Fitzgerald, who also increased their price target to $140 from $100. Jacob Gottlieb‘s Visium Asset Management multiplied its stake in the company more than 13 times during the April-June period to 1.23 million shares.

Disclosure: None