Surgery Partners Inc (SGRY): Are Hedge Funds Right About This Stock?

Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

Is Surgery Partners Inc (NASDAQ:SGRY) a worthy investment right now? Money managers are surely selling. The number of bullish hedge fund bets suffered a reduction of 2 in recent months. There were 9 hedge funds in our database with SGRY positions at the end of the previous quarter. 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 Lannett Company, Inc. (NYSEAMEX:LCI), Array Biopharma Inc (NASDAQ:ARRY), and Red Rock Resorts Inc (NASDAQ:RRR) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

With all of this in mind, let’s go over the new action encompassing Surgery Partners Inc (NASDAQ:SGRY).

How are hedge funds trading Surgery Partners Inc (NASDAQ:SGRY)?

At the end of the third quarter, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -22% from the previous quarter. By comparison, 5 hedge funds held shares or bullish call options in SGRY heading into this year. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Adage Capital Management, led by Phill Gross and Robert Atchinson, holds the number one position in Surgery Partners Inc (NASDAQ:SGRY). Adage Capital Management has a $15.2 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is John C. Walker of Stonerise Capital Management, with a $12.4 million position; 9.1% of its 13F portfolio is allocated to the company. Other members of the smart money with similar optimism comprise Israel Englander’s Millennium Management, one of the largest hedge funds in the world, James Dondero’s Highland Capital Management and Paul Marshall and Ian Wace’s Marshall Wace LLP. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Judging by the fact that Surgery Partners Inc (NASDAQ:SGRY) has weathered bearish sentiment from the entirety of the hedge funds we track, logic holds that there is a sect of hedge funds that elected to cut their positions entirely last quarter. Intriguingly, Ken Heebner’s Capital Growth Management dumped the biggest stake of all the hedgies monitored by Insider Monkey, totaling close to $1.6 million in stock. Steve Cohen’s fund, Point72 Asset Management, also dumped its stock, about $1.5 million worth.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Surgery Partners Inc (NASDAQ:SGRY) but similarly valued. These stocks are Lannett Company, Inc. (NYSEAMEX:LCI), Array Biopharma Inc (NASDAQ:ARRY), Red Rock Resorts Inc (NASDAQ:RRR), and CIRCOR International, Inc. (NYSE:CIR). This group of stocks’ market values are closest to SGRY’s market value.

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 $209 million. That figure was $39 million in SGRY’s case. Array Biopharma Inc (NASDAQ:ARRY) is the most popular stock in this table. On the other hand CIRCOR International, Inc. (NYSE:CIR) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Surgery Partners Inc (NASDAQ:SGRY) is even less popular than CIR. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

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