Hedge Funds Are Buying WellCare Health Plans, Inc. (WCG)

Billionaire hedge fund managers such as Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.

WellCare Health Plans, Inc. (NYSE:WCG) has experienced an increase in hedge fund sentiment lately. WCG was in 31 hedge funds’ portfolios at the end of September. There were 30 hedge funds in our database with WCG positions at the end of the previous quarter. This may not necessarily be a bullish indicator especially if WCG is less popular than similarly valued stocks. At the end of this article we will also compare WCG to other stocks including Patterson Companies, Inc. (NASDAQ:PDCO), Phillips 66 Partners LP (NYSE:PSXP), and United Therapeutics Corporation (NASDAQ:UTHR) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

How are hedge funds trading WellCare Health Plans, Inc. (NYSE:WCG)?

At the end of the third quarter, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, an increase of 3% from the second quarter of 2016. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Cliff Asness’ AQR Capital Management has the largest position in WellCare Health Plans, Inc. (NYSE:WCG), worth close to $161.4 million. Coming in second is Samuel Isaly of OrbiMed Advisors, with a $146.1 million position; the fund has 1.7% of its 13F portfolio invested in the stock. Remaining professional money managers that are bullish include Alan Fournier’s Pennant Capital Management, Principal Global Investors’ Columbus Circle Investors and Paul Reeder and Edward Shapiro’s PAR Capital Management.

Consequently, key hedge funds were leading the bulls’ herd. D E Shaw, managed by D. E. Shaw, created the biggest position in WellCare Health Plans, Inc. (NYSE:WCG). D E Shaw had $7.3 million invested in the company at the end of the quarter. Lee Ainslie’s Maverick Capital also initiated a $3.3 million position during the quarter. The following funds were also among the new WCG investors: Ken Griffin’s Citadel Investment Group, Mike Vranos’ Ellington, and Joel Greenblatt’s Gotham Asset Management.

Let’s now review hedge fund activity in other stocks similar to WellCare Health Plans, Inc. (NYSE:WCG). These stocks are Patterson Companies, Inc. (NASDAQ:PDCO), Phillips 66 Partners LP (NYSE:PSXP), United Therapeutics Corporation (NASDAQ:UTHR), and Braskem SA (ADR) (NYSE:BAK). This group of stocks’ market values match WCG’s market value.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $385 million. That figure was $649 million in WCG’s case. United Therapeutics Corporation (NASDAQ:UTHR) is the most popular stock in this table. On the other hand Phillips 66 Partners LP (NYSE:PSXP) is the least popular one with only 8 bullish hedge fund positions. WellCare Health Plans, Inc. (NYSE:WCG) is as popular as UTHR even though total value of hedge fund holdings is about half of UTHR’s total. Nevertheless, hedge funds collectively own more than 15% of WCG’s outstanding shares, which means they are three times overweight this stock, and you should consider taking a long position in the stock as well.

Disclosure: None