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Hedge Funds Aren’t Done Buying Change Healthcare Inc. (CHNG)

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Change Healthcare Inc. (NASDAQ:CHNG).

Is Change Healthcare Inc. (NASDAQ:CHNG) a marvelous investment now? The smart money is taking an optimistic view. The number of bullish hedge fund positions inched up by 22 recently. Our calculations also showed that CHNG 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).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 44 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Andreas Halvorsen

Andreas Halvorsen of Viking Global

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this successful trader’s “corona catalyst plays“. Also, Europe is set to become the world’s largest cannabis market, so we checked out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a glance at the latest hedge fund action surrounding Change Healthcare Inc. (NASDAQ:CHNG).

What does smart money think about Change Healthcare Inc. (NASDAQ:CHNG)?

At Q1’s end, a total of 47 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 88% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CHNG over the last 18 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Among these funds, Camber Capital Management held the most valuable stake in Change Healthcare Inc. (NASDAQ:CHNG), which was worth $129.9 million at the end of the third quarter. On the second spot was Viking Global which amassed $127.6 million worth of shares. Park West Asset Management, Eminence Capital, and Citadel Investment Group 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 Harspring Capital Management allocated the biggest weight to Change Healthcare Inc. (NASDAQ:CHNG), around 15.12% of its 13F portfolio. Simcoe Capital Management is also relatively very bullish on the stock, setting aside 8.37 percent of its 13F equity portfolio to CHNG.

With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Camber Capital Management, managed by Stephen DuBois, assembled the biggest position in Change Healthcare Inc. (NASDAQ:CHNG). Camber Capital Management had $129.9 million invested in the company at the end of the quarter. Andreas Halvorsen’s Viking Global also made a $127.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Ricky Sandler’s Eminence Capital, David Einhorn’s Greenlight Capital, and Amy Minella’s Cardinal Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Change Healthcare Inc. (NASDAQ:CHNG) but similarly valued. These stocks are Nutanix, Inc. (NASDAQ:NTNX), Mattel, Inc. (NASDAQ:MAT), FibroGen Inc (NASDAQ:FGEN), and Unum Group (NYSE:UNM). This group of stocks’ market values match CHNG’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NTNX 29 440426 -3
MAT 17 474848 -2
FGEN 22 283279 1
UNM 25 159751 -5
Average 23.25 339576 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $340 million. That figure was $1054 million in CHNG’s case. Nutanix, Inc. (NASDAQ:NTNX) is the most popular stock in this table. On the other hand Mattel, Inc. (NASDAQ:MAT) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Change Healthcare Inc. (NASDAQ:CHNG) is more popular among hedge funds. 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 returned 7.9% in 2020 through May 22nd but still managed to beat the market by 15.6 percentage points. Hedge funds were also right about betting on CHNG as the stock returned 23.3% so far in Q2 (through May 22nd) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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