Should You Buy Tabula Rasa HealthCare, Inc. (TRHC)?

Does Tabula Rasa HealthCare, Inc. (NASDAQ:TRHC) represent 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.

Is Tabula Rasa HealthCare, Inc. (NASDAQ:TRHC) the right pick for your portfolio? Money managers are taking a bullish view. The number of long hedge fund bets advanced by 3 in recent months. Our calculations also showed that TRHC 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.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Steven Cohen of Point72 Asset Management

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy  based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. Let’s go over the fresh hedge fund action encompassing Tabula Rasa HealthCare, Inc. (NASDAQ:TRHC).

What does smart money think about Tabula Rasa HealthCare, Inc. (NASDAQ:TRHC)?

Heading into the fourth quarter of 2019, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 43% from the previous quarter. By comparison, 10 hedge funds held shares or bullish call options in TRHC a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Tabula Rasa HealthCare, Inc. (NASDAQ:TRHC) was held by Royce & Associates, which reported holding $19.3 million worth of stock at the end of September. It was followed by Point72 Asset Management with a $10.3 million position. Other investors bullish on the company included Intrinsic Edge Capital, Sectoral Asset Management, and Osterweis Capital Management. In terms of the portfolio weights assigned to each position Intrinsic Edge Capital allocated the biggest weight to Tabula Rasa HealthCare, Inc. (NASDAQ:TRHC), around 1.16% of its 13F portfolio. Sectoral Asset Management is also relatively very bullish on the stock, dishing out 1.14 percent of its 13F equity portfolio to TRHC.

As aggregate interest increased, key money managers were breaking ground themselves. Sectoral Asset Management, managed by Jerome Pfund and Michael Sjostrom, created the most valuable position in Tabula Rasa HealthCare, Inc. (NASDAQ:TRHC). Sectoral Asset Management had $6.6 million invested in the company at the end of the quarter. Richard Driehaus’s Driehaus Capital also initiated a $3.2 million position during the quarter. The following funds were also among the new TRHC investors: Israel Englander’s Millennium Management, Ken Griffin’s Citadel Investment Group, and Paul Marshall and Ian Wace’s Marshall Wace.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Tabula Rasa HealthCare, Inc. (NASDAQ:TRHC) but similarly valued. We will take a look at OceanFirst Financial Corp. (NASDAQ:OCFC), GreenSky, Inc. (NASDAQ:GSKY), Winnebago Industries, Inc. (NYSE:WGO), and B&G Foods, Inc. (NYSE:BGS). This group of stocks’ market caps are closest to TRHC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OCFC 13 66418 0
GSKY 15 55125 -5
WGO 15 126735 2
BGS 16 134329 -4
Average 14.75 95652 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $96 million. That figure was $59 million in TRHC’s case. B&G Foods, Inc. (NYSE:BGS) is the most popular stock in this table. On the other hand OceanFirst Financial Corp. (NASDAQ:OCFC) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Tabula Rasa HealthCare, Inc. (NASDAQ:TRHC) is even less popular than OCFC. Hedge funds dodged a bullet by taking a bearish stance towards TRHC. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately TRHC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TRHC investors were disappointed as the stock returned -18.8% 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 70 percent of these stocks already outperformed the market so far in Q4.

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