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Hedge Funds Never Been This Bullish On Centene Corporation (CNC)

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 Centene Corporation (NYSE:CNC) and determine whether the smart money was really smart about this stock.

Is Centene Corporation (NYSE:CNC) going to take off soon? The best stock pickers were betting on the stock. The number of bullish hedge fund bets moved up by 5 recently. Centene Corporation (NYSE:CNC) was in 71 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 66. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that CNC 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.

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 56 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Ken Heebner of Capital Growth Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Currently, investors are pessimistic about commercial real estate investments. So, we are checking out this contrarian play to diversify our market exposure. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s take a peek at the latest hedge fund action encompassing Centene Corporation (NYSE:CNC).

How are hedge funds trading Centene Corporation (NYSE:CNC)?

At the end of June, a total of 71 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CNC over the last 20 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Centene Corporation (NYSE:CNC) was held by Viking Global, which reported holding $1023.6 million worth of stock at the end of September. It was followed by Farallon Capital with a $444.9 million position. Other investors bullish on the company included Southpoint Capital Advisors, Point72 Asset Management, and Theleme Partners. In terms of the portfolio weights assigned to each position Bridger Management allocated the biggest weight to Centene Corporation (NYSE:CNC), around 5.29% of its 13F portfolio. Theleme Partners is also relatively very bullish on the stock, designating 5.22 percent of its 13F equity portfolio to CNC.

With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. Woodline Partners, managed by Michael Rockefeller and KarláKroeker, created the biggest position in Centene Corporation (NYSE:CNC). Woodline Partners had $33.9 million invested in the company at the end of the quarter. Alok Agrawal’s Bloom Tree Partners also initiated a $27 million position during the quarter. The other funds with brand new CNC positions are Jerome Pfund and Michael Sjostrom’s Sectoral Asset Management, Ken Heebner’s Capital Growth Management, and John Brennan’s Sirios Capital Management.

Let’s now review hedge fund activity in other stocks similar to Centene Corporation (NYSE:CNC). We will take a look at FedEx Corporation (NYSE:FDX), L3Harris Technologies, Inc. (NYSE:LHX), Monster Beverage Corp (NASDAQ:MNST), General Motors Company (NYSE:GM), Exelon Corporation (NASDAQ:EXC), Veeva Systems Inc (NYSE:VEEV), and Eaton Corporation plc (NYSE:ETN). This group of stocks’ market valuations are similar to CNC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FDX 46 1254577 -4
LHX 50 1312574 7
MNST 35 1880728 -8
GM 69 4380069 16
EXC 30 772535 -3
VEEV 35 529727 2
ETN 34 560308 -1
Average 42.7 1527217 1.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.7 hedge funds with bullish positions and the average amount invested in these stocks was $1527 million. That figure was $3080 million in CNC’s case. General Motors Company (NYSE:GM) is the most popular stock in this table. On the other hand Exelon Corporation (NASDAQ:EXC) is the least popular one with only 30 bullish hedge fund positions. Compared to these stocks Centene Corporation (NYSE:CNC) is more popular among hedge funds. Our overall hedge fund sentiment score for CNC is 90. 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 28.2% in 2020 through August 24th and still beat the market by 20.6 percentage points. Unfortunately CNC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CNC were disappointed as the stock returned -5.1% since the end of the second quarter 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 most of these stocks already outperformed the market in 2020.

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