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Quorum Health Corporation (QHC) Is Burning These Hedge Funds

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Quorum Health Corporation (NYSE:QHC).

Hedge fund interest in Quorum Health Corporation (NYSE:QHC) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Nautilus, Inc. (NYSE:NLS), RCM Technologies, Inc. (NASDAQ:RCMT), and Mitcham Industries, Inc. (NASDAQ:MIND) to gather more data points. Our calculations also showed that QHC 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.

According to most investors, hedge funds are seen as unimportant, old financial tools of yesteryear. While there are more than 8000 funds trading today, Our experts hone in on the moguls of this club, about 750 funds. Most estimates calculate that this group of people oversee the majority of the smart money’s total capital, and by keeping an eye on their best equity investments, Insider Monkey has uncovered several investment strategies that have historically surpassed the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points annually since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

YORK CAPITAL MANAGEMENT

James Dinan of York Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the latest hedge fund action regarding Quorum Health Corporation (NYSE:QHC).

What does smart money think about Quorum Health Corporation (NYSE:QHC)?

At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. By comparison, 9 hedge funds held shares or bullish call options in QHC a year ago. 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 Quorum Health Corporation (NYSE:QHC) was held by York Capital Management, which reported holding $3.6 million worth of stock at the end of September. It was followed by Contrarian Capital with a $1.2 million position. Other investors bullish on the company included Renaissance Technologies, Litespeed Management, and Highland Capital Management. In terms of the portfolio weights assigned to each position Litespeed Management allocated the biggest weight to Quorum Health Corporation (NYSE:QHC), around 0.78% of its 13F portfolio. York Capital Management is also relatively very bullish on the stock, designating 0.17 percent of its 13F equity portfolio to QHC.

Because Quorum Health Corporation (NYSE:QHC) has experienced falling interest from the aggregate hedge fund industry, it’s safe to say that there was a specific group of hedge funds that elected to cut their positions entirely in the third quarter. Interestingly, Christopher Pucillo’s Solus Alternative Asset Management dropped the biggest stake of all the hedgies watched by Insider Monkey, totaling about $1.8 million in stock. Donald Sussman’s fund, Paloma Partners, also dumped its stock, about $0.2 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks similar to Quorum Health Corporation (NYSE:QHC). We will take a look at Nautilus, Inc. (NYSE:NLS), RCM Technologies, Inc. (NASDAQ:RCMT), Mitcham Industries, Inc. (NASDAQ:MIND), and Innovate Biopharmaceuticals, Inc. (NASDAQ:INNT). This group of stocks’ market valuations match QHC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NLS 13 6908 -1
RCMT 3 2784 1
MIND 4 10485 1
INNT 1 1336 -1
Average 5.25 5378 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 5.25 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $7 million in QHC’s case. Nautilus, Inc. (NYSE:NLS) is the most popular stock in this table. On the other hand Innovate Biopharmaceuticals, Inc. (NASDAQ:INNT) is the least popular one with only 1 bullish hedge fund positions. Quorum Health Corporation (NYSE:QHC) is not the most popular stock in this group but hedge fund interest is still above average. 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 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. Unfortunately QHC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on QHC were disappointed as the stock returned -51.2% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.

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

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