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Is Adeptus Health Inc (ADPT) Going to Burn These Hedge Funds?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed over the past few years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets, hoping that they will outperform the broader market. Our research shows that hedge funds do have great stock picking skills, so let’s take a glance at the smart money sentiment towards Adeptus Health Inc (NYSE:ADPT).

Is Adeptus Health Inc (NYSE:ADPT) a buy, sell, or hold? The best stock pickers are becoming more confident. The number of bullish hedge fund positions inched up by 7 lately. At the end of this article we will also compare ADPT to other stocks including Select Comfort Corp. (NASDAQ:SCSS), John Bean Technologies Corporation (NYSE:JBT), and Innospec Inc. (NASDAQ:IOSP) to get a better sense of its popularity.

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In the 21st century investor’s toolkit there are a multitude of formulas stock market investors use to value their stock investments. Two of the less utilized formulas are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the top fund managers can beat the market by a superb margin (see the details here).

With all of this in mind, we’re going to review the latest action regarding Adeptus Health Inc (NYSE:ADPT).

How have hedgies been trading Adeptus Health Inc (NYSE:ADPT)?

At the end of the third quarter, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 35% from the previous quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, James E. Flynn’s Deerfield Management has the number one position in Adeptus Health Inc (NYSE:ADPT), worth close to $44 million, corresponding to 1.7% of its total 13F portfolio. Coming in second is Ken Griffin’s Citadel Investment Group, with a $25.5 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining professional money managers that are bullish comprise Clifford Fox’s Columbus Circle Investors and Dmitry Balyasny’s Balyasny Asset Management.

Consequently, key money managers were breaking ground themselves. TPG-AXON Management LP, managed by Dinakar Singh, assembled the biggest position in Adeptus Health Inc (NYSE:ADPT). TPG-AXON Management LP had $15.1 million invested in the company at the end of the quarter. The other funds with brand new ADPT positions are Eric Chen’s Antipodean Advisors, Gilchrist Berg’s Water Street Capital, and Ken Fisher’s Fisher Asset Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Adeptus Health Inc (NYSE:ADPT) but similarly valued. We will take a look at Select Comfort Corp. (NASDAQ:SCSS), John Bean Technologies Corporation (NYSE:JBT), Innospec Inc. (NASDAQ:IOSP), and Omnicell, Inc. (NASDAQ:OMCL). This group of stocks’ market values resemble ADPT’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SCSS 25 138945 -4
JBT 19 100506 3
IOSP 16 165109 -3
OMCL 16 44350 -2

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $112 million, below the $235 million in ADPT’s case. Select Comfort Corp. (NASDAQ:SCSS) is the most popular stock in this table with 25 funds holding stakes as of September 30, while Innospec Inc. (NASDAQ:IOSP) is the least popular one with 16 bullish hedge fund positions. Compared to these stocks Adeptus Health Inc (NYSE:ADPT) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

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