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).
How have hedge funds been trading Anthem Inc (NYSE:ANTM)?
At the end of the first quarter of 2015, a total of 51 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from one quarter earlier.
Glenview Capital managed by Larry Robbins was the hedge fund with the largest stake in Anthem Inc (NYSE:ANTM), it being worth about $755.62 million or 3.45% of the fund’s entire portfolio. This is an increase of 37% quarter-over-quarter. Second is First Eagle Investment Management managed by Jean-Marie Eveillard, which owned about $453.98 million worth of shares. Other large shareholders are Yacktman Asset Management managed by Donald Yacktman, and AQR Capital Management managed by Cliff Asness.
There were also hedge funds which were placing large new bets on Anthem Inc (NYSE:ANTM) by the end of the first quarter. David Harding’s Winton Capital Management increased its stake by 54% quarter-over-quarter to 867,502 shares worth about $133.95 million. This is 1.06% of the fund’s portfolio. Jacob Gottlieb’s Visium Asset Management also boosted its stake in Anthem Inc by the end of the first quarter of 2015, by 19% quarter-over-quarter to 760,227 shares worth about $117.39 million and 1.73% of the fund’s portfolio.
Though the number of hedge funds which held long positions in Anthem decreased last quarter, the total value of hedge fund holdings in the company among the funds tracked by Insider Monkey increased to $3.15 billion from $3.07 billion, a bullish sign based on our experience, if only the stock price did not move. However, with shares of the company increasing over 20% during the first quarter of 2015, hedge funds actually sold off nearly 20% of their positions in Anthem. Taking all of these factors into account, the already heavy appreciation of Anthem’s shares this year, and seeming distaste Cigna has towards being acquired, we don’t recommend taking a long position in Anthem Inc (NYSE:ANTM) at this time.