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Is Change Healthcare Inc. (CHNG) A Good Stock To Buy?

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Change Healthcare Inc. (NASDAQ:CHNG).

Change Healthcare Inc. (NASDAQ:CHNG) was in 22 hedge funds’ portfolios at the end of September. CHNG investors should pay attention to a decrease in enthusiasm from smart money of late. There were 29 hedge funds in our database with CHNG holdings at the end of the previous quarter. Our calculations also showed that CHNG isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

To the average investor there are numerous signals market participants have at their disposal to appraise publicly traded companies. A couple of the most useful signals are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the top fund managers can outpace their index-focused peers by a solid margin (see the details here).

YORK CAPITAL MANAGEMENT

James Dinan of York Capital Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to view the new hedge fund action surrounding Change Healthcare Inc. (NASDAQ:CHNG).

Hedge fund activity in Change Healthcare Inc. (NASDAQ:CHNG)

Heading into the fourth quarter of 2019, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of -24% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CHNG over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Point72 Asset Management was the largest shareholder of Change Healthcare Inc. (NASDAQ:CHNG), with a stake worth $55.4 million reported as of the end of September. Trailing Point72 Asset Management was Healthcor Management, which amassed a stake valued at $51.4 million. Millennium Management, Polar Capital, and York 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 Healthcor Management allocated the biggest weight to Change Healthcare Inc. (NASDAQ:CHNG), around 1.94% of its 13F portfolio. Engle Capital is also relatively very bullish on the stock, dishing out 1.62 percent of its 13F equity portfolio to CHNG.

Seeing as Change Healthcare Inc. (NASDAQ:CHNG) has witnessed bearish sentiment from the smart money, it’s easy to see that there were a few hedgies who were dropping their entire stakes by the end of the third quarter. At the top of the heap, David Costen Haley’s HBK Investments dropped the largest stake of the 750 funds followed by Insider Monkey, worth an estimated $7.9 million in stock. Anand Parekh’s fund, Alyeska Investment Group, also dumped its stock, about $7.3 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 7 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Change Healthcare Inc. (NASDAQ:CHNG) but similarly valued. We will take a look at Granite Construction Incorporated (NYSE:GVA), American Woodmark Corporation (NASDAQ:AMWD), Brookfield Property REIT Inc. (NASDAQ:BPR), and Uniti Group Inc. (NASDAQ:UNIT). All of these stocks’ market caps resemble CHNG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GVA 11 38136 0
AMWD 13 41896 4
BPR 14 60227 -2
UNIT 22 172932 1
Average 15 78298 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $78 million. That figure was $255 million in CHNG’s case. Uniti Group Inc. (NASDAQ:UNIT) is the most popular stock in this table. On the other hand Granite Construction Incorporated (NYSE:GVA) is the least popular one with only 11 bullish hedge fund positions. Change Healthcare Inc. (NASDAQ:CHNG) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on CHNG as the stock returned 10.8% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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