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. 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 fourth 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 4 years and analyze what the smart money thinks of Select Medical Holdings Corporation (NYSE:SEM) based on that data.
Select Medical Holdings Corporation (NYSE:SEM) was in 21 hedge funds’ portfolios at the end of the fourth quarter of 2019. SEM shareholders have witnessed an increase in hedge fund interest in recent months. There were 20 hedge funds in our database with SEM holdings at the end of the previous quarter. Our calculations also showed that SEM 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).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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 take a gander at the latest hedge fund action regarding Select Medical Holdings Corporation (NYSE:SEM).
How have hedgies been trading Select Medical Holdings Corporation (NYSE:SEM)?
At the end of the fourth quarter, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the previous quarter. By comparison, 19 hedge funds held shares or bullish call options in SEM a year ago. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Renaissance Technologies has the number one position in Select Medical Holdings Corporation (NYSE:SEM), worth close to $20.4 million, accounting for less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is D E Shaw, led by D. E. Shaw, holding a $19.4 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other members of the smart money with similar optimism encompass James E. Flynn’s Deerfield Management, Noam Gottesman’s GLG Partners and Paul Reeder and Edward Shapiro’s PAR Capital Management. In terms of the portfolio weights assigned to each position Deerfield Management allocated the biggest weight to Select Medical Holdings Corporation (NYSE:SEM), around 0.59% of its 13F portfolio. PAR Capital Management is also relatively very bullish on the stock, setting aside 0.26 percent of its 13F equity portfolio to SEM.
Consequently, key hedge funds were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the largest position in Select Medical Holdings Corporation (NYSE:SEM). Arrowstreet Capital had $2.1 million invested in the company at the end of the quarter. Michael Kharitonov and Jon David McAuliffe’s Voleon Capital also initiated a $1.2 million position during the quarter. The other funds with new positions in the stock are John Overdeck and David Siegel’s Two Sigma Advisors, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Benjamin A. Smith’s Laurion Capital Management.
Let’s go over hedge fund activity in other stocks similar to Select Medical Holdings Corporation (NYSE:SEM). These stocks are Sunstone Hotel Investors Inc (NYSE:SHO), Quidel Corporation (NASDAQ:QDEL), Uniqure NV (NASDAQ:QURE), and BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ). This group of stocks’ market caps match SEM’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $409 million. That figure was $128 million in SEM’s case. Uniqure NV (NASDAQ:QURE) is the most popular stock in this table. On the other hand Quidel Corporation (NASDAQ:QDEL) is the least popular one with only 18 bullish hedge fund positions. Select Medical Holdings Corporation (NYSE:SEM) 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 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 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately SEM wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SEM investors were disappointed as the stock returned -32.1% 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 most of these stocks already outperformed the market in Q1.
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.