We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind let’s see whether Change Healthcare Inc. (NASDAQ:CHNG) represents a good buying opportunity at the moment. Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Change Healthcare Inc. (NASDAQ:CHNG) investors should pay attention to an increase in enthusiasm from smart money of late. Our calculations also showed that CHNG isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
James Dinan of York Capital Management
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, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s view the key hedge fund action surrounding Change Healthcare Inc. (NASDAQ:CHNG).
Hedge fund activity in Change Healthcare Inc. (NASDAQ:CHNG)
At the end of the fourth quarter, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CHNG over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Point72 Asset Management held the most valuable stake in Change Healthcare Inc. (NASDAQ:CHNG), which was worth $57.2 million at the end of the third quarter. On the second spot was Healthcor Management LP which amassed $46.7 million worth of shares. Polar Capital, SQN Investors, 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 Harspring Capital Management allocated the biggest weight to Change Healthcare Inc. (NASDAQ:CHNG), around 6.12% of its 13F portfolio. Parian Global Management is also relatively very bullish on the stock, designating 2.78 percent of its 13F equity portfolio to CHNG.
With a general bullishness amongst the heavyweights, specific money managers have jumped into Change Healthcare Inc. (NASDAQ:CHNG) headfirst. SQN Investors, managed by Amish Mehta, assembled the biggest position in Change Healthcare Inc. (NASDAQ:CHNG). SQN Investors had $28.6 million invested in the company at the end of the quarter. Peter S. Park’s Park West Asset Management also made a $17 million investment in the stock during the quarter. The following funds were also among the new CHNG investors: Zachary Miller’s Parian Global Management, David Rosen’s Rubric Capital Management, and Harry Gail’s Harspring Capital Management.
Let’s now review hedge fund activity in other stocks similar to Change Healthcare Inc. (NASDAQ:CHNG). We will take a look at Meritor Inc (NYSE:MTOR), AMTD International Inc. (NYSE:HKIB), Otter Tail Corporation (NASDAQ:OTTR), and CommVault Systems, Inc. (NASDAQ:CVLT). This group of stocks’ market caps match CHNG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MTOR | 29 | 412626 | 4 |
| HKIB | 1 | 17460 | 0 |
| OTTR | 11 | 79797 | -4 |
| CVLT | 33 | 374010 | 5 |
| Average | 18.5 | 220973 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $221 million. That figure was $312 million in CHNG’s case. CommVault Systems, Inc. (NASDAQ:CVLT) is the most popular stock in this table. On the other hand AMTD International Inc. (NYSE:HKIB) is the least popular one with only 1 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. 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately CHNG wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CHNG were disappointed as the stock returned -41.7% during the same time period 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.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
