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Did Hedge Funds Make The Right Call On Tenet Healthcare Corp (THC) ?

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 Tenet Healthcare Corp (NYSE:THC) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Tenet Healthcare Corp (NYSE:THC) has experienced an increase in hedge fund sentiment of late. Our calculations also showed that THC 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 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.

Wil Harkey Nantahala Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a look at the latest hedge fund action surrounding Tenet Healthcare Corp (NYSE:THC).

Hedge fund activity in Tenet Healthcare Corp (NYSE:THC)

Heading into the second quarter of 2020, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards THC 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 THC A Good Stock To Buy?

Among these funds, Glenview Capital held the most valuable stake in Tenet Healthcare Corp (NYSE:THC), which was worth $284.2 million at the end of the third quarter. On the second spot was Camber Capital Management which amassed $50.4 million worth of shares. Nantahala Capital Management, Nantahala Capital Management, and Nut Tree 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 Mudrick Capital Management allocated the biggest weight to Tenet Healthcare Corp (NYSE:THC), around 10.98% of its 13F portfolio. Nut Tree Capital is also relatively very bullish on the stock, designating 10.66 percent of its 13F equity portfolio to THC.

Now, specific money managers have been driving this bullishness. Mudrick Capital Management, managed by Jason Mudrick, created the most outsized position in Tenet Healthcare Corp (NYSE:THC). Mudrick Capital Management had $9 million invested in the company at the end of the quarter. Steven Tananbaum’s GoldenTree Asset Management also initiated a $2.6 million position during the quarter. The following funds were also among the new THC investors: Lee Ainslie’s Maverick Capital, Greg Eisner’s Engineers Gate Manager, and Yi Xin’s Ariose Capital.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Tenet Healthcare Corp (NYSE:THC) but similarly valued. These stocks are American Assets Trust, Inc (NYSE:AAT), SAGE Therapeutics Inc (NASDAQ:SAGE), PQ Group Holdings Inc. (NYSE:PQG), and Trustmark Corp (NASDAQ:TRMK). This group of stocks’ market valuations resemble THC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AAT 15 33326 0
SAGE 30 257910 -5
PQG 7 36427 3
TRMK 13 11558 -3
Average 16.25 84805 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $85 million. That figure was $490 million in THC’s case. SAGE Therapeutics Inc (NASDAQ:SAGE) is the most popular stock in this table. On the other hand PQ Group Holdings Inc. (NYSE:PQG) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Tenet Healthcare Corp (NYSE:THC) 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 THC as the stock returned 25.8% 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.