Is Anthem Inc (NYSE:ANTM) a good stock to buy now? The hospital and medical service plans company, in a filing with the Securities and Exchange Commission (SEC), is reiterating its commitment to purchase CIGNA Corporation (NYSE:CI) with a $184 per share proposal, an increase from the $175 per share proposal it previously made, though the new a $47.5 billion deal has already been rejected by CIGNA’s Board. Joseph Swedish, president and chief executive officer of Anthem Inc (NYSE:ANTM), said in a statement that the proposal his company forwarded to Cigna “presents significant and compelling value for shareholders in a transaction that would bring together two highly complementary platforms with a powerful growth potential.” The combination of both companies would create a “premier health benefits company”, Anthem insists. The resulting company, should the deal go through, will have about $2 billion in synergies within two years, the firm notes. The offer is very compelling, Anthem adds, and presents a significant premium for CIGNA shareholders. When it comes to hedge fund activity on Anthem Inc (NYSE:ANTM), however, there seems to be less enthusiasm. By the end of the first quarter of 2015, there were 51 hedge funds among the hedge funds tracked by Insider Monkey which held long positions in the company, a decrease of 9% from the previous quarter.
For those wondering why hedge fund intelligence site Insider Monkey is tracking hedge fund activity concerning companies like Anthem Inc, most investors can’t outperform the stock market by individually picking stocks because stock returns aren’t evenly distributed. A randomly picked stock has only a 35% to 45% chance (depending on the investment horizon) to outperform the market. There are a few exceptions, one of which is when it comes to purchases made by corporate insiders. Academic research has shown that certain insider purchases historically outperformed the market by an average of seven percentage points per year. This effect is more pronounced in small-cap stocks. Another exception is the small-cap stock picks of hedge funds. Our research has shown that the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month between 1999 and 2012. We have been forward testing the performance of these stock picks since the end of August 2012 and they have returned more than 144% over the ensuing 32 months, outperforming the S&P 500 Index by nearly 85 percentage points (read the details here). The trick is focusing only on the best small-cap stock picks of funds, not their large-cap stock picks which are extensively covered by analysts and followed by almost everybody.
When it comes to insider sentiment on Anthem Inc, we see some insider sales, like the one made by Director Ramiro Peru, who sold 4,709 shares at the start of this month. Director William Ryan also sold 4,709 shares by the end of May, while Samuel Nussbaum, executive vice president and chief medical officer, sold 69,340 shares throughout April and May.
With this information in mind, let’s see what actions hedge funds have been taking regarding Anthem Inc (NYSE:ANTM).