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Hedge Funds Like Molina Healthcare, Inc. (MOH)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Molina Healthcare, Inc. (NYSE:MOH) and determine whether the smart money was really smart about this stock.

Molina Healthcare, Inc. (NYSE:MOH) has seen an increase in enthusiasm from smart money lately. Molina Healthcare, Inc. (NYSE:MOH) was in 34 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 35. Our calculations also showed that MOH 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).

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

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. 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 58 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

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, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now we’re going to view the latest hedge fund action surrounding Molina Healthcare, Inc. (NYSE:MOH).

What does smart money think about Molina Healthcare, Inc. (NYSE:MOH)?

At Q2’s end, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from the first quarter of 2020. On the other hand, there were a total of 32 hedge funds with a bullish position in MOH a year ago. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of Molina Healthcare, Inc. (NYSE:MOH), with a stake worth $654.3 million reported as of the end of September. Trailing Renaissance Technologies was Viking Global, which amassed a stake valued at $180.4 million. Iridian Asset Management, Glenview Capital, and D E Shaw 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 Tavio Capital allocated the biggest weight to Molina Healthcare, Inc. (NYSE:MOH), around 21.58% of its 13F portfolio. Iron Triangle Partners is also relatively very bullish on the stock, earmarking 4.48 percent of its 13F equity portfolio to MOH.

As one would reasonably expect, key money managers were breaking ground themselves. Sectoral Asset Management, managed by Jerome Pfund and Michael Sjostrom, created the biggest position in Molina Healthcare, Inc. (NYSE:MOH). Sectoral Asset Management had $14.9 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $12.5 million investment in the stock during the quarter. The other funds with brand new MOH positions are Sander Gerber’s Hudson Bay Capital Management, Principal Global Investors’s Columbus Circle Investors, and Ken Heebner’s Capital Growth Management.

Let’s now review hedge fund activity in other stocks similar to Molina Healthcare, Inc. (NYSE:MOH). We will take a look at Royal Caribbean Cruises Ltd. (NYSE:RCL), Avalara, Inc. (NYSE:AVLR), CBOE Global Markets Inc (NASDAQ:CBOE), Huazhu Group Limited (NASDAQ:HTHT), Icahn Enterprises LP (NASDAQ:IEP), Franklin Resources, Inc. (NYSE:BEN), and Essential Utilities Inc (NYSE:WTRG). This group of stocks’ market valuations match MOH’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RCL 31 381178 6
AVLR 37 1446149 3
CBOE 32 840386 -6
HTHT 17 381209 0
IEP 3 9994902 0
BEN 36 410167 4
WTRG 15 536751 -8
Average 24.4 1998677 -0.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.4 hedge funds with bullish positions and the average amount invested in these stocks was $1999 million. That figure was $1316 million in MOH’s case. Avalara, Inc. (NYSE:AVLR) is the most popular stock in this table. On the other hand Icahn Enterprises LP (NASDAQ:IEP) is the least popular one with only 3 bullish hedge fund positions. Molina Healthcare, Inc. (NYSE:MOH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MOH is 81.7. 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 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately MOH wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MOH were disappointed as the stock returned 3.9% 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.