Was The Smart Money Right About Humana Inc (HUM)?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Humana Inc (NYSE:HUM)? The smart money sentiment can provide an answer to this question.

Is Humana Inc (NYSE:HUM) worth your attention right now? The best stock pickers were becoming less confident. The number of long hedge fund bets were trimmed by 2 lately. Humana Inc (NYSE:HUM) was in 59 hedge funds’ portfolios at the end of December. The all time high for this statistic is 75. Our calculations also showed that HUM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Aaron Cowen Suvretta Capital

Aaron Cowen of Suvretta Capital Management

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. With all of this in mind we’re going to view the latest hedge fund action surrounding Humana Inc (NYSE:HUM).

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

At the end of December, a total of 59 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the third quarter of 2020. Below, you can check out the change in hedge fund sentiment towards HUM over the last 22 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is HUM A Good Stock To Buy?

The largest stake in Humana Inc (NYSE:HUM) was held by Lone Pine Capital, which reported holding $618.8 million worth of stock at the end of December. It was followed by GQG Partners with a $482.5 million position. Other investors bullish on the company included Renaissance Technologies, Diamond Hill Capital, and AQR Capital Management. In terms of the portfolio weights assigned to each position BloombergSen allocated the biggest weight to Humana Inc (NYSE:HUM), around 6.95% of its 13F portfolio. Welch Capital Partners is also relatively very bullish on the stock, setting aside 4.03 percent of its 13F equity portfolio to HUM.

Judging by the fact that Humana Inc (NYSE:HUM) has experienced declining sentiment from the smart money, logic holds that there was a specific group of hedge funds who sold off their entire stakes heading into Q1. At the top of the heap, Aaron Cowen’s Suvretta Capital Management dropped the largest investment of all the hedgies watched by Insider Monkey, valued at close to $67.1 million in stock, and Michael Rockefeller and Karl Kroeker’s Woodline Partners was right behind this move, as the fund dumped about $22.5 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 2 funds heading into Q1.

Let’s now take a look at hedge fund activity in other stocks similar to Humana Inc (NYSE:HUM). We will take a look at Illumina, Inc. (NASDAQ:ILMN), Westpac Banking Corporation (NYSE:WBK), Banco Santander, S.A. (NYSE:SAN), DuPont de Nemours Inc (NYSE:DD), Regeneron Pharmaceuticals Inc (NASDAQ:REGN), Dollar General Corp. (NYSE:DG), and ICICI Bank Limited (NYSE:IBN). This group of stocks’ market valuations match HUM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ILMN 45 1747647 1
WBK 3 29715 -1
SAN 14 415472 0
DD 60 6277336 -1
REGN 46 1330342 2
DG 57 1677239 1
IBN 29 1080794 5
Average 36.3 1794078 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.3 hedge funds with bullish positions and the average amount invested in these stocks was $1794 million. That figure was $3966 million in HUM’s case. DuPont de Nemours Inc (NYSE:DD) is the most popular stock in this table. On the other hand Westpac Banking Corporation (NYSE:WBK) is the least popular one with only 3 bullish hedge fund positions. Humana Inc (NYSE:HUM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HUM is 75.7. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and beat the market again by 1.6 percentage points. Unfortunately HUM wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on HUM were disappointed as the stock returned 8.7% since the end of December (through 4/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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