Hedge Funds Are Cashing Out Of Community Health Systems (CYH)

Is Community Health Systems (NYSE:CYH) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Community Health Systems (NYSE:CYH) was in 21 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 59. CYH investors should pay attention to a decrease in enthusiasm from smart money in recent months. There were 26 hedge funds in our database with CYH holdings at the end of December. Our calculations also showed that CYH isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

Chuck Royce

Chuck Royce of Royce & Associates

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let’s view the new hedge fund action surrounding Community Health Systems (NYSE:CYH).

Do Hedge Funds Think CYH Is A Good Stock To Buy Now?

Heading into the second quarter of 2021, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from one quarter earlier. On the other hand, there were a total of 20 hedge funds with a bullish position in CYH a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

Is CYH A Good Stock To Buy?

The largest stake in Community Health Systems (NYSE:CYH) was held by Shanda Asset Management, which reported holding $86.6 million worth of stock at the end of December. It was followed by Elliott Investment Management with a $60.8 million position. Other investors bullish on the company included Royce & Associates, D E Shaw, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Shanda Asset Management allocated the biggest weight to Community Health Systems (NYSE:CYH), around 7.14% of its 13F portfolio. Centerbridge Partners is also relatively very bullish on the stock, earmarking 3.27 percent of its 13F equity portfolio to CYH.

Because Community Health Systems (NYSE:CYH) has faced a decline in interest from hedge fund managers, it’s easy to see that there was a specific group of hedge funds that slashed their positions entirely by the end of the first quarter. Interestingly, Jonathan Barrett and Paul Segal’s Luminus Management dropped the biggest investment of the 750 funds watched by Insider Monkey, totaling an estimated $9.5 million in stock, and Frank Fu’s CaaS Capital was right behind this move, as the fund cut about $9.1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 5 funds by the end of the first quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Community Health Systems (NYSE:CYH) but similarly valued. We will take a look at Cardtronics plc (NASDAQ:CATM), Cerevel Therapeutics Holdings, Inc. (NASDAQ:CERE), Core-Mark Holding Company, Inc. (NASDAQ:CORE), CBIZ, Inc. (NYSE:CBZ), Argo Group International Holdings, Ltd. (NYSE:ARGO), Kaiser Aluminum Corp. (NASDAQ:KALU), and Workhorse Group, Inc. (NASDAQ:WKHS). All of these stocks’ market caps match CYH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CATM 23 624327 0
CERE 22 210033 0
CORE 15 73163 -2
CBZ 13 242367 0
ARGO 13 234054 2
KALU 13 58200 -4
WKHS 16 96616 0
Average 16.4 219823 -0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.4 hedge funds with bullish positions and the average amount invested in these stocks was $220 million. That figure was $401 million in CYH’s case. Cardtronics plc (NASDAQ:CATM) is the most popular stock in this table. On the other hand CBIZ, Inc. (NYSE:CBZ) is the least popular one with only 13 bullish hedge fund positions. Community Health Systems (NYSE:CYH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CYH is 50.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and beat the market again by 7.7 percentage points. Unfortunately CYH wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on CYH were disappointed as the stock returned 9.2% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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