Is Genesis Healthcare (GEN) A Good Stock To Buy Now?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the third quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Genesis Healthcare Inc (NYSE:GEN) based on that data.

Is Genesis Healthcare (GEN) a good stock to buy now? GEN shareholders have witnessed a decrease in enthusiasm from smart money recently. Genesis Healthcare Inc (NYSE:GEN) was in 6 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 12. There were 8 hedge funds in our database with GEN positions at the end of the second quarter. Our calculations also showed that GEN 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.

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 66 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 Griffin

Ken Griffin of Citadel Investment Group

Now we’re going to check out the new hedge fund action surrounding Genesis Healthcare Inc (NYSE:GEN).

How have hedgies been trading Genesis Healthcare Inc (NYSE:GEN)?

At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from the second quarter of 2020. On the other hand, there were a total of 4 hedge funds with a bullish position in GEN a year ago. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

The largest stake in Genesis Healthcare Inc (NYSE:GEN) was held by Renaissance Technologies, which reported holding $2.1 million worth of stock at the end of September. It was followed by V3 Capital with a $1.6 million position. Other investors bullish on the company included Millennium Management, LMR Partners, and Citadel Investment Group. In terms of the portfolio weights assigned to each position V3 Capital allocated the biggest weight to Genesis Healthcare Inc (NYSE:GEN), around 0.37% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.0021 percent of its 13F equity portfolio to GEN.

Seeing as Genesis Healthcare Inc (NYSE:GEN) has witnessed bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there were a few funds who were dropping their entire stakes by the end of the third quarter. Intriguingly, Donald Sussman’s Paloma Partners dropped the biggest stake of the 750 funds tracked by Insider Monkey, worth close to $0.1 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund sold off about $0.1 million worth. These transactions are important to note, as total hedge fund interest dropped by 2 funds by the end of the third quarter.

Let’s also examine hedge fund activity in other stocks similar to Genesis Healthcare Inc (NYSE:GEN). We will take a look at Potbelly Corp (NASDAQ:PBPB), Oasis Petroleum Inc. (NYSE:OAS), Amesite Inc. (NASDAQ:AMST), Malvern Bancorp, Inc. (NASDAQ:MLVF), DLH Holdings Corp. (NASDAQ:DLHC), Phoenix New Media Ltd (NYSE:FENG), and Electromed, Inc. (NYSE:ELMD). This group of stocks’ market caps resemble GEN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PBPB 7 20437 -2
OAS 10 5446 -7
AMST 1 293 1
MLVF 7 21196 -3
DLHC 8 35961 3
FENG 8 4029 2
ELMD 6 5692 2
Average 6.7 13293 -0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.7 hedge funds with bullish positions and the average amount invested in these stocks was $13 million. That figure was $4 million in GEN’s case. Oasis Petroleum Inc. (NYSE:OAS) is the most popular stock in this table. On the other hand Amesite Inc. (NASDAQ:AMST) is the least popular one with only 1 bullish hedge fund positions. Genesis Healthcare Inc (NYSE:GEN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for GEN is 45.8. 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 negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 30.7% in 2020 through November 27th and surpassed the market again by 16.1 percentage points. Unfortunately GEN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); GEN investors were disappointed as the stock returned -5.6% since the end of September (through 11/27) 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.

Follow Genesis Healthcare Inc. (NYSE:GEN)

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