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Hedge Fund Consensus Stocks vs. UnitedHealth Group Inc. (UNH) In 2019

Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds. What do these smart investors think about UnitedHealth Group Inc. (NYSE:UNH)?

UnitedHealth Group Inc. (NYSE:UNH) has seen an increase in support from the world’s most elite money managers lately. Our calculations also showed that UNH currently ranks 26th among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Lone Pine Capital 2015 Q2 Investor Letter

Stephen Mandel of Lone Pine Capital

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s go over the fresh hedge fund action regarding UnitedHealth Group Inc. (NYSE:UNH).

What does smart money think about UnitedHealth Group Inc. (NYSE:UNH)?

At the end of the third quarter, a total of 77 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from the previous quarter. By comparison, 71 hedge funds held shares or bullish call options in UNH a year ago. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

Is UNH A Good Stock To Buy?

Among these funds, Lone Pine Capital held the most valuable stake in UnitedHealth Group Inc. (NYSE:UNH), which was worth $984.2 million at the end of the third quarter. On the second spot was Eagle Capital Management which amassed $810.3 million worth of shares. Orbis Investment Management, GQG Partners, and Renaissance Technologies 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 Abrams Bison Investments allocated the biggest weight to UnitedHealth Group Inc. (NYSE:UNH), around 16.06% of its 13F portfolio. GuardCap Asset Management is also relatively very bullish on the stock, setting aside 7.57 percent of its 13F equity portfolio to UNH.

As industrywide interest jumped, key money managers have been driving this bullishness. Renaissance Technologies, established the most outsized position in UnitedHealth Group Inc. (NYSE:UNH). Renaissance Technologies had $353.1 million invested in the company at the end of the quarter. Steven Boyd’s Armistice Capital also initiated a $19.1 million position during the quarter. The other funds with new positions in the stock are Zach Schreiber’s Point State Capital, Matthew Tewksbury’s Stevens Capital Management, and Sculptor Capital.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as UnitedHealth Group Inc. (NYSE:UNH) but similarly valued. These stocks are Comcast Corporation (NASDAQ:CMCSA), Novartis AG (NYSE:NVS), Pfizer Inc. (NYSE:PFE), and PepsiCo, Inc. (NYSE:PEP). This group of stocks’ market caps resemble UNH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CMCSA 82 6384615 -4
NVS 28 1708118 -2
PFE 55 3767946 3
PEP 57 3744859 2
Average 55.5 3901385 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 55.5 hedge funds with bullish positions and the average amount invested in these stocks was $3901 million. That figure was $5611 million in UNH’s case. Comcast Corporation (NASDAQ:CMCSA) is the most popular stock in this table. On the other hand Novartis AG (NYSE:NVS) is the least popular one with only 28 bullish hedge fund positions. UnitedHealth Group Inc. (NYSE:UNH) is not the most popular stock in this group but hedge fund interest is still above average. 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 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately UNH wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on UNH were disappointed as the stock returned 20.5% in 2019 (through December 23rd) 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.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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