Did Hedge Funds Make The Right Call On Mednax Inc. (MD)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Mednax Inc. (NYSE:MD) based on that data and determine whether they were really smart about the stock.

Is Mednax Inc. (NYSE:MD) a buy, sell, or hold? The best stock pickers were taking a bearish view. The number of bullish hedge fund bets went down by 7 lately. Our calculations also showed that MD 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).

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

In today’s marketplace there are many tools shareholders put to use to value stocks. Two of the best tools are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the best money managers can outperform the S&P 500 by a healthy amount (see the details here).

Michael Castor of Sio Capital

Michael Castor of Sio Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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 tiny lithium stock. Now we’re going to check out the fresh hedge fund action surrounding Mednax Inc. (NYSE:MD).

What have hedge funds been doing with Mednax Inc. (NYSE:MD)?

Heading into the second quarter of 2020, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from the previous quarter. By comparison, 23 hedge funds held shares or bullish call options in MD a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

Among these funds, Starboard Value LP held the most valuable stake in Mednax Inc. (NYSE:MD), which was worth $91.8 million at the end of the third quarter. On the second spot was P2 Capital Partners which amassed $45.4 million worth of shares. Healthcor Management LP, D E Shaw, and Clearline Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position P2 Capital Partners allocated the biggest weight to Mednax Inc. (NYSE:MD), around 5.43% of its 13F portfolio. Starboard Value LP is also relatively very bullish on the stock, earmarking 3.72 percent of its 13F equity portfolio to MD.

Since Mednax Inc. (NYSE:MD) has experienced a decline in interest from the aggregate hedge fund industry, we can see that there were a few fund managers who were dropping their positions entirely by the end of the first quarter. Intriguingly, Stephen DuBois’s Camber Capital Management said goodbye to the biggest position of the 750 funds followed by Insider Monkey, totaling an estimated $22 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also cut its stock, about $12.6 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 7 funds by the end of the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Mednax Inc. (NYSE:MD) but similarly valued. These stocks are Akebia Therapeutics Inc (NASDAQ:AKBA), JELD-WEN Holding, Inc. (NYSE:JELD), Methode Electronics Inc. (NYSE:MEI), and Meritor Inc (NYSE:MTOR). This group of stocks’ market values match MD’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AKBA 18 340546 2
JELD 20 144013 -9
MEI 13 71718 -1
MTOR 17 166288 -12
Average 17 180641 -5

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $181 million. That figure was $238 million in MD’s case. JELD-WEN Holding, Inc. (NYSE:JELD) is the most popular stock in this table. On the other hand Methode Electronics Inc. (NYSE:MEI) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Mednax Inc. (NYSE:MD) 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on MD as the stock returned 46.9% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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