Hedge Funds Have Never Been This Bullish On Encompass Health Corporation (EHC)

In this article you are going to find out whether hedge funds think Encompass Health Corporation (NYSE:EHC) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Encompass Health Corporation (NYSE:EHC) has seen an increase in enthusiasm from smart money lately. EHC was in 33 hedge funds’ portfolios at the end of the first quarter of 2020. There were 29 hedge funds in our database with EHC positions at the end of the previous quarter. Our calculations also showed that EHC 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.

According to most stock holders, hedge funds are perceived as unimportant, outdated investment tools of years past. While there are greater than 8000 funds with their doors open at the moment, We look at the aristocrats of this club, approximately 850 funds. These money managers control the lion’s share of the hedge fund industry’s total asset base, and by watching their matchless equity investments, Insider Monkey has found a number of investment strategies that have historically exceeded the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Kris Jenner - Rock Springs Capital

Kris Jenner of Rock Springs Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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. With all of this in mind let’s take a look at the recent hedge fund action surrounding Encompass Health Corporation (NYSE:EHC).

How are hedge funds trading Encompass Health Corporation (NYSE:EHC)?

At the end of the first quarter, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from the previous quarter. On the other hand, there were a total of 24 hedge funds with a bullish position in EHC a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Healthcor Management LP held the most valuable stake in Encompass Health Corporation (NYSE:EHC), which was worth $97.7 million at the end of the third quarter. On the second spot was Viking Global which amassed $92.6 million worth of shares. Citadel Investment Group, Rock Springs Capital Management, and Two Sigma Advisors 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 Iron Triangle Partners allocated the biggest weight to Encompass Health Corporation (NYSE:EHC), around 9.91% of its 13F portfolio. Healthcor Management LP is also relatively very bullish on the stock, dishing out 4.18 percent of its 13F equity portfolio to EHC.

As aggregate interest increased, key hedge funds have been driving this bullishness. Healthcor Management LP, managed by Arthur B Cohen and Joseph Healey, established the biggest position in Encompass Health Corporation (NYSE:EHC). Healthcor Management LP had $97.7 million invested in the company at the end of the quarter. Andreas Halvorsen’s Viking Global also initiated a $92.6 million position during the quarter. The other funds with brand new EHC positions are Renaissance Technologies, Krishen Sud’s Sivik Global Healthcare, and Bhagwan Jay Rao’s Integral Health Asset Management.

Let’s now take a look at hedge fund activity in other stocks similar to Encompass Health Corporation (NYSE:EHC). We will take a look at The Interpublic Group of Companies, Inc. (NYSE:IPG), Charles River Laboratories International Inc. (NYSE:CRL), Hubbell Incorporated (NYSE:HUBB), and Assurant, Inc. (NYSE:AIZ). This group of stocks’ market values resemble EHC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IPG 21 594460 -5
CRL 36 862557 4
HUBB 15 272338 -8
AIZ 33 782609 8
Average 26.25 627991 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $628 million. That figure was $557 million in EHC’s case. Charles River Laboratories International Inc. (NYSE:CRL) is the most popular stock in this table. On the other hand Hubbell Incorporated (NYSE:HUBB) is the least popular one with only 15 bullish hedge fund positions. Encompass Health Corporation (NYSE:EHC) is not the most popular stock in this group but hedge fund interest is still above average. 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 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 8.3% in 2020 through the end of May but beat the market by 13.2 percentage points. Unfortunately EHC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on EHC were disappointed as the stock returned 14.4% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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