Did Hedge Funds Make The Right Call On Community Health Systems (CYH) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Community Health Systems (NYSE:CYH) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Community Health Systems (NYSE:CYH) worth your attention right now? Investors who are in the know were in a bullish mood. The number of bullish hedge fund positions went up by 4 lately. Our calculations also showed that CYH isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). CYH was in 20 hedge funds’ portfolios at the end of the first quarter of 2020. There were 16 hedge funds in our database with CYH holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Bill Miller

Bill Miller of Miller Value Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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. Now we’re going to view the latest hedge fund action encompassing Community Health Systems (NYSE:CYH).

What have hedge funds been doing with Community Health Systems (NYSE:CYH)?

Heading into the second quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CYH over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is CYH A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Shanda Asset Management, managed by Chen Tianqiao, holds the biggest position in Community Health Systems (NYSE:CYH). Shanda Asset Management has a $91.8 million position in the stock, comprising 21.2% of its 13F portfolio. The second largest stake is held by Elliott Management, managed by Paul Singer, which holds a $15 million position; 0.3% of its 13F portfolio is allocated to the company. Some other peers that are bullish contain Chuck Royce’s Royce & Associates, D. E. Shaw’s D E Shaw and Boaz Weinstein’s Saba Capital. In terms of the portfolio weights assigned to each position Shanda Asset Management allocated the biggest weight to Community Health Systems (NYSE:CYH), around 21.2% of its 13F portfolio. Centerbridge Partners is also relatively very bullish on the stock, earmarking 1.38 percent of its 13F equity portfolio to CYH.

Now, key money managers have been driving this bullishness. Shanda Asset Management, managed by Chen Tianqiao, assembled the most outsized position in Community Health Systems (NYSE:CYH). Shanda Asset Management had $91.8 million invested in the company at the end of the quarter. Mark T. Gallogly’s Centerbridge Partners also initiated a $5.7 million position during the quarter. The following funds were also among the new CYH investors: Rob Citrone’s Discovery Capital Management, Greg Eisner’s Engineers Gate Manager, and Jonathan Soros’s JS Capital.

Let’s now review hedge fund activity in other stocks similar to Community Health Systems (NYSE:CYH). We will take a look at Gilat Satellite Networks Ltd. (NASDAQ:GILT), Mechel PAO (NYSE:MTL), Vapotherm, Inc. (NYSE:VAPO), and Magic Software Enterprises Ltd. (NASDAQ:MGIC). This group of stocks’ market values match CYH’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GILT 13 50128 11
MTL 3 1432 1
VAPO 12 100026 2
MGIC 3 4732 0
Average 7.75 39080 3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $39 million. That figure was $159 million in CYH’s case. Gilat Satellite Networks Ltd. (NASDAQ:GILT) is the most popular stock in this table. On the other hand Mechel PAO (NYSE:MTL) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Community Health Systems (NYSE:CYH) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. Unfortunately CYH wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CYH were disappointed as the stock returned 18% since the end of the first quarter 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 most of these stocks already outperformed the market in 2020.

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