Tenet Healthcare Corp (THC) Fell Out Of Favor With Hedge Funds?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Tenet Healthcare Corp (NYSE:THC).

Tenet Healthcare Corp (NYSE:THC) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 39 hedge funds’ portfolios at the end of June. Our calculations also showed that THC isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). At the end of this article we will also compare THC to other stocks including STAAR Surgical Company (NASDAQ:STAA), Euronet Worldwide, Inc. (NASDAQ:EEFT), and Change Healthcare Inc. (NASDAQ:CHNG) to get a better sense of its popularity.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we’re going to take a glance at the key hedge fund action regarding Tenet Healthcare Corp (NYSE:THC).

Do Hedge Funds Think THC Is A Good Stock To Buy Now?

At the end of June, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards THC over the last 24 quarters. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Among these funds, Glenview Capital held the most valuable stake in Tenet Healthcare Corp (NYSE:THC), which was worth $713.1 million at the end of the second quarter. On the second spot was Camber Capital Management which amassed $190.9 million worth of shares. Viking Global, Centerbridge Partners, and Citadel Investment Group 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 Nut Tree Capital allocated the biggest weight to Tenet Healthcare Corp (NYSE:THC), around 19.42% of its 13F portfolio. Centerbridge Partners is also relatively very bullish on the stock, designating 13.15 percent of its 13F equity portfolio to THC.

Due to the fact that Tenet Healthcare Corp (NYSE:THC) has witnessed declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there were a few hedge funds who sold off their entire stakes heading into Q3. Intriguingly, David Rosen’s Rubric Capital Management dumped the biggest position of the “upper crust” of funds watched by Insider Monkey, comprising close to $45.9 million in stock, and Ken Heebner’s Capital Growth Management was right behind this move, as the fund sold off about $35.4 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks similar to Tenet Healthcare Corp (NYSE:THC). We will take a look at STAAR Surgical Company (NASDAQ:STAA), Euronet Worldwide, Inc. (NASDAQ:EEFT), Change Healthcare Inc. (NASDAQ:CHNG), Nikola Corporation (NASDAQ:NKLA), Toll Brothers Inc (NYSE:TOL), Cullen/Frost Bankers, Inc. (NYSE:CFR), and Axalta Coating Systems Ltd (NYSE:AXTA). This group of stocks’ market valuations match THC’s market valuation.

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As you can see these stocks had an average of 31.6 hedge funds with bullish positions and the average amount invested in these stocks was $937 million. That figure was $1861 million in THC’s case. Change Healthcare Inc. (NASDAQ:CHNG) is the most popular stock in this table. On the other hand Nikola Corporation (NASDAQ:NKLA) is the least popular one with only 12 bullish hedge fund positions. Tenet Healthcare Corp (NYSE:THC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for THC is 66.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 21.8% in 2021 through October 11th and beat the market again by 4.4 percentage points. Unfortunately THC wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on THC were disappointed as the stock returned -7.4% since the end of June (through 10/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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