Is Centene (CNC) A Good Stock To Buy Now?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Centene Corporation (NYSE:CNC).

Is Centene (CNC) a good stock to buy now? CNC has experienced a decrease in activity from the world’s largest hedge funds of late. Centene Corporation (NYSE:CNC) was in 58 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 71. Our calculations also showed that CNC isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.

If you’d ask most stock holders, hedge funds are viewed as underperforming, outdated investment vehicles of years past. While there are greater than 8000 funds with their doors open at present, We hone in on the bigwigs of this club, approximately 850 funds. These hedge fund managers orchestrate bulk of the hedge fund industry’s total asset base, and by keeping track of their highest performing investments, Insider Monkey has deciphered a few investment strategies that have historically exceeded the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .

James Flynn Deerfield Management

James E. Flynn of Deerfield Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets. Tesla’s stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium stock right now. We go through lists like the 15 best blue chip stocks to buy 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. With all of this in mind let’s take a peek at the latest hedge fund action encompassing Centene Corporation (NYSE:CNC).

How have hedgies been trading Centene Corporation (NYSE:CNC)?

At third quarter’s end, a total of 58 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CNC over the last 21 quarters. So, let’s examine 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 $1017.6 million worth of stock at the end of September. It was followed by Farallon Capital with a $411.2 million position. Other investors bullish on the company included Southpoint Capital Advisors, Lyrical Asset Management, and Deerfield Management. In terms of the portfolio weights assigned to each position Courage Capital allocated the biggest weight to Centene Corporation (NYSE:CNC), around 5.21% of its 13F portfolio. Theleme Partners is also relatively very bullish on the stock, dishing out 4.67 percent of its 13F equity portfolio to CNC.

Seeing as Centene Corporation (NYSE:CNC) has experienced declining sentiment from the smart money, we can see that there is a sect of funds who sold off their entire stakes heading into Q4. Intriguingly, Aaron Cowen’s Suvretta Capital Management said goodbye to the biggest stake of the “upper crust” of funds followed by Insider Monkey, totaling an estimated $87.9 million in stock. Michael Rockefeller and KarláKroeker’s fund, Woodline Partners, also said goodbye to its stock, about $33.9 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 13 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Centene Corporation (NYSE:CNC) but similarly valued. These stocks are Metlife Inc (NYSE:MET), IDEXX Laboratories, Inc. (NASDAQ:IDXX), CoStar Group Inc (NASDAQ:CSGP), Canadian Imperial Bank of Commerce (NYSE:CM), Ross Stores, Inc. (NASDAQ:ROST), Capital One Financial Corp. (NYSE:COF), and Synopsys, Inc. (NASDAQ:SNPS). This group of stocks’ market caps are similar to CNC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MET 36 920750 5
IDXX 41 544779 1
CSGP 55 3047003 5
CM 12 155900 6
ROST 46 755549 -4
COF 42 2539275 -13
SNPS 32 1058943 -2
Average 37.7 1288886 -0.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 37.7 hedge funds with bullish positions and the average amount invested in these stocks was $1289 million. That figure was $2843 million in CNC’s case. CoStar Group Inc (NASDAQ:CSGP) is the most popular stock in this table. On the other hand Canadian Imperial Bank of Commerce (NYSE:CM) is the least popular one with only 12 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 66.5. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. Unfortunately CNC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CNC were disappointed as the stock returned 9.4% since the end of the third quarter (through 12/2) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 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.