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Did Hedge Funds Make The Right Call On Universal Health Services, Inc. (UHS) ?

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 Universal Health Services, Inc. (NYSE:UHS) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Universal Health Services, Inc. (NYSE:UHS) the right pick for your portfolio? Hedge funds were reducing their bets on the stock. The number of long hedge fund positions decreased by 1 in recent months. Our calculations also showed that UHS 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). UHS was in 30 hedge funds’ portfolios at the end of March. There were 31 hedge funds in our database with UHS 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 lot of tools stock traders employ to value stocks. A couple of the most underrated tools are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the top picks of the top hedge fund managers can trounce the broader indices by a very impressive margin (see the details here).

James Flynn Deerfield Management

James E. Flynn of Deerfield Management

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. With all of this in mind we’re going to take a look at the fresh hedge fund action surrounding Universal Health Services, Inc. (NYSE:UHS).

Hedge fund activity in Universal Health Services, Inc. (NYSE:UHS)

Heading into the second quarter of 2020, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the fourth quarter of 2019. On the other hand, there were a total of 29 hedge funds with a bullish position in UHS a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is UHS A Good Stock To Buy?

More specifically, AQR Capital Management was the largest shareholder of Universal Health Services, Inc. (NYSE:UHS), with a stake worth $180.2 million reported as of the end of September. Trailing AQR Capital Management was Camber Capital Management, which amassed a stake valued at $111.5 million. Glenview Capital, Arrowstreet Capital, and Deerfield Management 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 Camber Capital Management allocated the biggest weight to Universal Health Services, Inc. (NYSE:UHS), around 6.66% of its 13F portfolio. Sivik Global Healthcare is also relatively very bullish on the stock, earmarking 2.58 percent of its 13F equity portfolio to UHS.

Because Universal Health Services, Inc. (NYSE:UHS) has experienced a decline in interest from the smart money, it’s safe to say that there was a specific group of hedge funds that decided to sell off their full holdings last quarter. It’s worth mentioning that Renaissance Technologies dumped the biggest position of the “upper crust” of funds followed by Insider Monkey, totaling about $27.5 million in stock. John Brennan’s fund, Sirios Capital Management, also cut its stock, about $18 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Universal Health Services, Inc. (NYSE:UHS) but similarly valued. We will take a look at EXACT Sciences Corporation (NASDAQ:EXAS), Allegion plc (NYSE:ALLE), Pinnacle West Capital Corporation (NYSE:PNW), and Cheniere Energy, Inc. (NYSE:LNG). All of these stocks’ market caps resemble UHS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EXAS 34 514351 -7
ALLE 31 404344 6
PNW 25 923395 0
LNG 39 1880676 -4
Average 32.25 930692 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.25 hedge funds with bullish positions and the average amount invested in these stocks was $931 million. That figure was $444 million in UHS’s case. Cheniere Energy, Inc. (NYSE:LNG) is the most popular stock in this table. On the other hand Pinnacle West Capital Corporation (NYSE:PNW) is the least popular one with only 25 bullish hedge fund positions. Universal Health Services, Inc. (NYSE:UHS) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately UHS wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); UHS investors were disappointed as the stock returned -6.2% during the second 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.