Is EHC Stock A Buy or Sell?

The Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Encompass Health Corporation (NYSE:EHC).

Is EHC stock a buy? Encompass Health Corporation (NYSE:EHC) investors should pay attention to an increase in hedge fund interest lately. Encompass Health Corporation (NYSE:EHC) was in 35 hedge funds’ portfolios at the end of December. The all time high for this statistic is 33. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 32 hedge funds in our database with EHC positions at the end of the third quarter. Our calculations also showed that EHC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 124 percentage points since March 2017 (see the details here).

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we heard that billionaire Peter Thiel is backing this psychedelic-drug startup. So, we are taking a closer look at this space. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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. Keeping this in mind let’s view the recent hedge fund action regarding Encompass Health Corporation (NYSE:EHC).

Do Hedge Funds Think EHC Is A Good Stock To Buy Now?

At the end of the fourth quarter, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from the third quarter of 2020. By comparison, 29 hedge funds held shares or bullish call options in EHC a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Viking Global, managed by Andreas Halvorsen, holds the largest position in Encompass Health Corporation (NYSE:EHC). Viking Global has a $218.6 million position in the stock, comprising 0.6% of its 13F portfolio. The second largest stake is held by JANA Partners, managed by Barry Rosenstein, which holds a $214.4 million position; the fund has 14.5% of its 13F portfolio invested in the stock. Other peers with similar optimism encompass Brian Ashford-Russell and Tim Woolley’s Polar Capital, Israel Englander’s Millennium Management and Kris Jenner, Gordon Bussard, Graham McPhail’s Rock Springs Capital Management. In terms of the portfolio weights assigned to each position JANA Partners allocated the biggest weight to Encompass Health Corporation (NYSE:EHC), around 14.52% of its 13F portfolio. Iron Triangle Partners is also relatively very bullish on the stock, earmarking 5.36 percent of its 13F equity portfolio to EHC.

Consequently, specific money managers were breaking ground themselves. Woodline Partners, managed by Michael Rockefeller and Karl Kroeker, assembled the largest position in Encompass Health Corporation (NYSE:EHC). Woodline Partners had $15.6 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $8.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Bhagwan Jay Rao’s Integral Health Asset Management, Richard Schimel and Lawrence Sapanski’s Cinctive Capital Management, and James A. Mitarotonda’s Barington Capital Group.

Let’s check out hedge fund activity in other stocks similar to Encompass Health Corporation (NYSE:EHC). These stocks are Companhia Siderurgica Nacional (NYSE:SID), Owens Corning (NYSE:OC), Gold Fields Limited (NYSE:GFI), Ciena Corporation (NYSE:CIEN), Vedanta Ltd (NYSE:VEDL), Alteryx, Inc. (NYSE:AYX), and Adaptive Biotechnologies Corporation (NASDAQ:ADPT). This group of stocks’ market caps match EHC’s market cap.

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As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $818 million. That figure was $758 million in EHC’s case. Alteryx, Inc. (NYSE:AYX) is the most popular stock in this table. On the other hand Companhia Siderurgica Nacional (NYSE:SID) is the least popular one with only 9 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. Our overall hedge fund sentiment score for EHC is 77.4. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 7.9% in 2021 through April 1st and beat the market again by 0.4 percentage points. Unfortunately EHC wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on EHC were disappointed as the stock returned 0.2% since the end of December (through 4/1) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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