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Should You Buy Genesis Healthcare Inc (GEN)?

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Genesis Healthcare Inc (NYSE:GEN) based on those filings.

Is Genesis Healthcare Inc (NYSE:GEN) going to take off soon? Prominent investors are getting more optimistic. The number of long hedge fund bets advanced by 1 in recent months. Our calculations also showed that GEN isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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 51 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.

Ken Griffin CITADEL INVESTMENT GROUP

Ken Griffin of Citadel Investment Group

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a look at the key hedge fund action regarding Genesis Healthcare Inc (NYSE:GEN).

How are hedge funds trading Genesis Healthcare Inc (NYSE:GEN)?

At Q1’s end, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from one quarter earlier. By comparison, 5 hedge funds held shares or bullish call options in GEN a year ago. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, V3 Capital, managed by Charles Fitzgerald, holds the largest position in Genesis Healthcare Inc (NYSE:GEN). V3 Capital has a $4.3 million position in the stock, comprising 0.9% of its 13F portfolio. The second most bullish fund is Renaissance Technologies, which holds a $3.7 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining professional money managers that hold long positions contain Israel Englander’s Millennium Management, Ken Griffin’s Citadel Investment Group and . In terms of the portfolio weights assigned to each position V3 Capital allocated the biggest weight to Genesis Healthcare Inc (NYSE:GEN), around 0.94% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, designating 0.0035 percent of its 13F equity portfolio to GEN.

As aggregate interest increased, key hedge funds were breaking ground themselves. V3 Capital, managed by Charles Fitzgerald, assembled the biggest position in Genesis Healthcare Inc (NYSE:GEN). V3 Capital had $4.3 million invested in the company at the end of the quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Genesis Healthcare Inc (NYSE:GEN) but similarly valued. These stocks are Vera Bradley, Inc. (NASDAQ:VRA), Gold Standard Ventures Corp (NYSE:GSV), Kandi Technologies Group, Inc. (NASDAQ:KNDI), and MMA Capital Holdings, Inc. (NASDAQ:MMAC). This group of stocks’ market valuations are closest to GEN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VRA 18 14827 0
GSV 4 3886 1
KNDI 1 102 -2
MMAC 3 3297 0
Average 6.5 5528 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.5 hedge funds with bullish positions and the average amount invested in these stocks was $6 million. That figure was $9 million in GEN’s case. Vera Bradley, Inc. (NASDAQ:VRA) is the most popular stock in this table. On the other hand Kandi Technologies Group, Inc. (NASDAQ:KNDI) 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. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May and surpassed the market by 13.2 percentage points. Unfortunately GEN wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); GEN investors were disappointed as the stock returned 2.6% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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