Were Hedge Funds Illusioned With Encompass Health Corporation (EHC)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Encompass Health Corporation (NYSE:EHC) and determine whether hedge funds skillfully traded this stock.

Encompass Health Corporation (NYSE:EHC) investors should be aware of an increase in enthusiasm from smart money of late. Encompass Health Corporation (NYSE:EHC) was in 44 hedge funds’ portfolios at the end of September. The all time high for this statistic was previously 42. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 42 hedge funds in our database with EHC positions at the end of the second quarter. Our calculations also showed that EHC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

Steven Cohen of Point72 Asset Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. Now let’s take a peek at the fresh hedge fund action regarding Encompass Health Corporation (NYSE:EHC).

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

At the end of September, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in EHC over the last 25 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is EHC A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, JANA Partners, managed by Barry Rosenstein, holds the number one position in Encompass Health Corporation (NYSE:EHC). JANA Partners has a $150.2 million position in the stock, comprising 12% of its 13F portfolio. Coming in second is Polar Capital, managed by Brian Ashford-Russell and Tim Woolley, which holds a $74.4 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Some other peers with similar optimism comprise Steve Cohen’s Point72 Asset Management, and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position JANA Partners allocated the biggest weight to Encompass Health Corporation (NYSE:EHC), around 12.02% of its 13F portfolio. Jet Capital Investors is also relatively very bullish on the stock, designating 10.95 percent of its 13F equity portfolio to EHC.

With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Canyon Capital Advisors, managed by Joshua Friedman and Mitchell Julis, established the most valuable position in Encompass Health Corporation (NYSE:EHC). Canyon Capital Advisors had $47.6 million invested in the company at the end of the quarter. Larry Robbins’s Glenview Capital also made a $30.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Benjamin Natter’s Kent Lake Capital, Renaissance Technologies, and Matthew Mark’s Jet Capital Investors.

Let’s now review hedge fund activity in other stocks similar to Encompass Health Corporation (NYSE:EHC). We will take a look at Stevanato Group S.p.A. (NYSE:STVN), Sotera Health Company (NASDAQ:SHC), ITT Inc. (NYSE:ITT), Sarepta Therapeutics Inc (NASDAQ:SRPT), Brunswick Corporation (NYSE:BC), First American Financial Corp (NYSE:FAF), and Capri Holdings Limited (NYSE:CPRI). All of these stocks’ market caps are closest to EHC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
STVN 16 142293 16
SHC 20 396497 2
ITT 20 195476 0
SRPT 28 836968 -6
BC 39 1090033 1
FAF 29 1505467 -2
CPRI 46 833450 2
Average 28.3 714312 1.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.3 hedge funds with bullish positions and the average amount invested in these stocks was $714 million. That figure was $708 million in EHC’s case. Capri Holdings Limited (NYSE:CPRI) is the most popular stock in this table. On the other hand Stevanato Group S.p.A. (NYSE:STVN) is the least popular one with only 16 bullish hedge fund positions. Encompass Health Corporation (NYSE:EHC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for EHC is 83.7. 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 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, EHC wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on EHC were disappointed as the stock returned -17% since the end of September (through 1/31) 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 all of these stocks already outperformed the market since 2019.

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