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Do Hedge Funds Love U.S. Physical Therapy, Inc. (USPH)?

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 8 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in U.S. Physical Therapy, Inc. (NYSE:USPH).

U.S. Physical Therapy, Inc. (NYSE:USPH) shareholders have witnessed an increase in activity from the world’s largest hedge funds in recent months. Our calculations also showed that USPH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

At the moment there are a multitude of signals stock traders employ to value their holdings. A pair of the less known signals are hedge fund and insider trading interest. We have shown that, historically, those who follow the best picks of the best fund managers can outpace the broader indices by a significant amount (see the details here).

David Harding

David Harding of Winton Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy  based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to check out the new hedge fund action surrounding U.S. Physical Therapy, Inc. (NYSE:USPH).

How are hedge funds trading U.S. Physical Therapy, Inc. (NYSE:USPH)?

At the end of the third quarter, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards USPH over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of U.S. Physical Therapy, Inc. (NYSE:USPH), with a stake worth $36.7 million reported as of the end of September. Trailing Renaissance Technologies was Royce & Associates, which amassed a stake valued at $13 million. Millennium Management, Citadel Investment Group, and Winton Capital 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 Quantinno Capital allocated the biggest weight to U.S. Physical Therapy, Inc. (NYSE:USPH), around 0.18% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, designating 0.12 percent of its 13F equity portfolio to USPH.

As one would reasonably expect, key money managers have been driving this bullishness. Millennium Management, managed by Israel Englander, established the most valuable position in U.S. Physical Therapy, Inc. (NYSE:USPH). Millennium Management had $5.9 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also initiated a $0.9 million position during the quarter. The other funds with new positions in the stock are David E. Shaw’s D E Shaw, Noam Gottesman’s GLG Partners, and Dmitry Balyasny’s Balyasny Asset Management.

Let’s go over hedge fund activity in other stocks similar to U.S. Physical Therapy, Inc. (NYSE:USPH). We will take a look at Calavo Growers, Inc. (NASDAQ:CVGW), SailPoint Technologies Holdings, Inc. (NYSE:SAIL), Banco Macro SA (NYSE:BMA), and Meredith Corporation (NYSE:MDP). This group of stocks’ market values match USPH’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CVGW 17 108346 2
SAIL 23 226214 1
BMA 11 95493 1
MDP 19 274737 8
Average 17.5 176198 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $176 million. That figure was $65 million in USPH’s case. SailPoint Technologies Holdings, Inc. (NYSE:SAIL) is the most popular stock in this table. On the other hand Banco Macro SA (NYSE:BMA) is the least popular one with only 11 bullish hedge fund positions. U.S. Physical Therapy, Inc. (NYSE:USPH) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately USPH wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); USPH investors were disappointed as the stock returned -10.3% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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

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