Hedge Funds Are Coming Back To Select Medical Holdings Corporation (SEM)

Is Select Medical Holdings Corporation (NYSE:SEM) 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.

Is Select Medical Holdings Corporation (NYSE:SEM) undervalued? Prominent investors were getting more optimistic. The number of long hedge fund positions advanced by 7 in recent months. Select Medical Holdings Corporation (NYSE:SEM) was in 22 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 26. Our calculations also showed that SEM isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

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. Keeping this in mind let’s go over the new hedge fund action regarding Select Medical Holdings Corporation (NYSE:SEM).

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

At the end of March, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 47% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in SEM a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Is SEM A Good Stock To Buy?

More specifically, Point72 Asset Management was the largest shareholder of Select Medical Holdings Corporation (NYSE:SEM), with a stake worth $62.5 million reported as of the end of March. Trailing Point72 Asset Management was Arrowstreet Capital, which amassed a stake valued at $31.6 million. Royce & Associates, Renaissance Technologies, and Marshall Wace LLP 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 Huber Capital Management allocated the biggest weight to Select Medical Holdings Corporation (NYSE:SEM), around 0.77% of its 13F portfolio. Point72 Asset Management is also relatively very bullish on the stock, earmarking 0.29 percent of its 13F equity portfolio to SEM.

As one would reasonably expect, key money managers were breaking ground themselves. Renaissance Technologies, established the largest position in Select Medical Holdings Corporation (NYSE:SEM). Renaissance Technologies had $10.2 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $9.7 million position during the quarter. The following funds were also among the new SEM investors: Israel Englander’s Millennium Management, Matthew Hulsizer’s PEAK6 Capital Management, and Michael Gelband’s ExodusPoint Capital.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Select Medical Holdings Corporation (NYSE:SEM) but similarly valued. We will take a look at frontdoor, inc. (NASDAQ:FTDR), HUYA Inc. (NYSE:HUYA), China Biologic Products Holdings Inc (NASDAQ:CBPO), Houlihan Lokey Inc (NYSE:HLI), Leslie’s, Inc. (NASDAQ:LESL), Kornit Digital Ltd. (NASDAQ:KRNT), and National Beverage Corp. (NASDAQ:FIZZ). This group of stocks’ market values match SEM’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FTDR 36 763384 -1
HUYA 13 335848 1
CBPO 15 1001472 -1
HLI 16 125689 -10
LESL 27 285809 5
KRNT 24 153853 9
FIZZ 15 258478 -6
Average 20.9 417790 -0.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.9 hedge funds with bullish positions and the average amount invested in these stocks was $418 million. That figure was $179 million in SEM’s case. frontdoor, inc. (NASDAQ:FTDR) is the most popular stock in this table. On the other hand HUYA Inc. (NYSE:HUYA) is the least popular one with only 13 bullish hedge fund positions. Select Medical Holdings Corporation (NYSE:SEM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SEM is 54.9. 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. 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 still beat the market by 7.7 percentage points. Hedge funds were also right about betting on SEM, though not to the same extent, as the stock returned 14% since Q1 (through July 16th) and outperformed the market as well.

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