Is Chemed Corporation (CHE) Going to Burn These Hedge Funds?

Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant out-performance. These stocks have been on a tear since the end of June, outperforming large-cap index funds by more than 10 percentage points. That’s why we pay special attention to hedge fund activity in these stocks.

Chemed Corporation (NYSE:CHE) was in 15 hedge funds’ portfolios at the end of the third quarter of 2016. CHE investors should be aware of a decrease in hedge fund interest in recent months. There were 17 hedge funds in our database with CHE positions at the end of the previous quarter. At the end of this article we will also compare CHE to other stocks including Clear Channel Outdoor Holdings, Inc. (NYSE:CCO), WebMD Health Corp. (NASDAQ:WBMD), and Cepheid (NASDAQ:CPHD) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

What have hedge funds been doing with Chemed Corporation (NYSE:CHE)?

Heading into the fourth quarter of 2016, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a 12% dip from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CHE over the last 5 quarters, which has generally been within a narrow range. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, GAMCO Investors, led by Mario Gabelli, holds the largest position in Chemed Corporation (NYSE:CHE). GAMCO Investors has an $89.7 million position in the stock. Coming in second is Fisher Asset Management, led by Ken Fisher, holding a $77.5 million position. Other professional money managers that hold long positions encompass Amy Minella’s Cardinal Capital, Jim Simons’ Renaissance Technologies, and Joel Greenblatt’s Gotham Asset Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Due to the fact that Chemed Corporation (NYSE:CHE) has encountered falling interest from hedge fund managers, it’s safe to say that there is a sect of hedgies who sold off their positions entirely last quarter. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP cashed in the biggest investment of all the hedgies followed by Insider Monkey, valued at close to $5.5 million in stock, and Michael Platt and William Reeves’ BlueCrest Capital Mgmt. was right behind this move, as the fund dropped about $0.8 million worth of shares.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Chemed Corporation (NYSE:CHE) but similarly valued. These stocks are Clear Channel Outdoor Holdings, Inc. (NYSE:CCO), WebMD Health Corp. (NASDAQ:WBMD), Cepheid (NASDAQ:CPHD), and New Gold Inc. (USA) (NYSEAMEX:NGD). This group of stocks’ market values are closest to CHE’s market value.

As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $292 million. That figure was $244 million in CHE’s case. Cepheid (NASDAQ:CPHD) is the most popular stock in this table. On the other hand New Gold Inc. (USA) (NYSEAMEX:NGD) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Chemed Corporation (NYSE:CHE) is even less popular than NGD. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

Disclosure: None