Hedge Funds Dumped Tenet Healthcare Corp (THC) At The Wrong Time

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Tenet Healthcare Corp (NYSE:THC) and determine whether hedge funds had an edge regarding this stock.

Is Tenet Healthcare Corp (NYSE:THC) worth your attention right now? The smart money was in a pessimistic mood. The number of long hedge fund bets dropped by 7 recently. Tenet Healthcare Corp (NYSE:THC) was in 28 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 44. Our calculations also showed that THC isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 35 hedge funds in our database with THC positions at the end of the first quarter.

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

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.


Larry Robbins of Glenview Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Now let’s take a glance at the key hedge fund action surrounding Tenet Healthcare Corp (NYSE:THC).

What have hedge funds been doing with Tenet Healthcare Corp (NYSE:THC)?

Heading into the third quarter of 2020, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from the first quarter of 2020. By comparison, 30 hedge funds held shares or bullish call options in THC a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Glenview Capital held the most valuable stake in Tenet Healthcare Corp (NYSE:THC), which was worth $357.9 million at the end of the third quarter. On the second spot was Nantahala Capital Management which amassed $43.5 million worth of shares. Nantahala Capital Management, Nut Tree Capital, and Redwood 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 Glenview Capital allocated the biggest weight to Tenet Healthcare Corp (NYSE:THC), around 9.87% of its 13F portfolio. Nut Tree Capital is also relatively very bullish on the stock, earmarking 9.42 percent of its 13F equity portfolio to THC.

Due to the fact that Tenet Healthcare Corp (NYSE:THC) has faced a decline in interest from hedge fund managers, it’s safe to say that there were a few money managers that decided to sell off their full holdings heading into Q3. Interestingly, Stephen DuBois’s Camber Capital Management dropped the largest investment of the 750 funds watched by Insider Monkey, valued at an estimated $50.4 million in stock. Jason Mudrick’s fund, Mudrick Capital Management, also dropped its stock, about $9 million worth. These transactions are interesting, as total hedge fund interest was cut by 7 funds heading into Q3.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Tenet Healthcare Corp (NYSE:THC) but similarly valued. We will take a look at Prospect Capital Corporation (NASDAQ:PSEC), Cardlytics, Inc. (NASDAQ:CDLX), Prestige Consumer Healthcare Inc. (NYSE:PBH), Central Garden & Pet Co (NASDAQ:CENT), Dicerna Pharmaceuticals Inc (NASDAQ:DRNA), EVO Payments, Inc. (NASDAQ:EVOP), and Atlas Corp. (NYSE:ATCO). This group of stocks’ market values resemble THC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PSEC 7 22588 -1
CDLX 27 588778 1
PBH 20 118784 3
CENT 15 138827 -4
DRNA 35 342076 10
EVOP 14 49627 4
ATCO 12 790416 -1
Average 18.6 293014 1.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.6 hedge funds with bullish positions and the average amount invested in these stocks was $293 million. That figure was $583 million in THC’s case. Dicerna Pharmaceuticals Inc (NASDAQ:DRNA) is the most popular stock in this table. On the other hand Prospect Capital Corporation (NASDAQ:PSEC) is the least popular one with only 7 bullish hedge fund positions. Tenet Healthcare Corp (NYSE:THC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for THC is 54.6. 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 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 gained 21.3% in 2020 through September 25th and still beat the market by 17.7 percentage points. Hedge funds were also right about betting on THC as the stock returned 26.4% during Q3 (through September 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Follow Tenet Healthcare Corp (NYSE:THC)

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