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Were Hedge Funds Right About Centene Corporation (CNC)?

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 Centene Corporation (NYSE:CNC) based on that data.

Is Centene Corporation (NYSE:CNC) undervalued? Investors who are in the know are in an optimistic mood. The number of bullish hedge fund positions increased by 3 recently. Our calculations also showed that CNC 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).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Andreas Halvorsen

Andreas Halvorsen of Viking Global

We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations. Blockchain technology is about to go mainstream and reach heavy adoption, so we check out this tech investor’s blockchain stock pick. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). 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. Keeping this in mind we’re going to take a look at the new hedge fund action encompassing Centene Corporation (NYSE:CNC).

How have hedgies been trading Centene Corporation (NYSE:CNC)?

Heading into the first quarter of 2020, a total of 62 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from one quarter earlier. On the other hand, there were a total of 56 hedge funds with a bullish position in CNC a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

Is CNC A Good Stock To Buy?

More specifically, Viking Global was the largest shareholder of Centene Corporation (NYSE:CNC), with a stake worth $685.7 million reported as of the end of September. Trailing Viking Global was Lyrical Asset Management, which amassed a stake valued at $265.5 million. Maverick Capital, Southpoint Capital Advisors, 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 Tavio Capital allocated the biggest weight to Centene Corporation (NYSE:CNC), around 11.2% of its 13F portfolio. Sand Grove Capital Partners is also relatively very bullish on the stock, setting aside 8.72 percent of its 13F equity portfolio to CNC.

As industrywide interest jumped, key hedge funds were breaking ground themselves. Lyrical Asset Management, managed by Andrew Wellington and Jeff Keswin, initiated the largest position in Centene Corporation (NYSE:CNC). Lyrical Asset Management had $265.5 million invested in the company at the end of the quarter. Aaron Cowen’s Suvretta Capital Management also initiated a $94.6 million position during the quarter. The other funds with brand new CNC positions are Christopher James’s Partner Fund Management, Arthur B Cohen and Joseph Healey’s Healthcor Management LP, and Michael Rockefeller and Karl Kroeker’s Woodline Partners.

Let’s now take a look at hedge fund activity in other stocks similar to Centene Corporation (NYSE:CNC). These stocks are Willis Towers Watson Public Limited Company (NASDAQ:WLTW), PPL Corporation (NYSE:PPL), ViacomCBS Inc. (NASDAQ:VIAC), and Archer Daniels Midland Company (NYSE:ADM). This group of stocks’ market valuations resemble CNC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WLTW 35 1952657 -4
PPL 32 598981 5
VIAC 64 3293442 22
ADM 28 712255 5
Average 39.75 1639334 7

View table here if you experience formatting issues.

As you can see these stocks had an average of 39.75 hedge funds with bullish positions and the average amount invested in these stocks was $1639 million. That figure was $3049 million in CNC’s case. ViacomCBS Inc. (NASDAQ:VIAC) is the most popular stock in this table. On the other hand Archer Daniels Midland Company (NYSE:ADM) is the least popular one with only 28 bullish hedge fund positions. Centene Corporation (NYSE:CNC) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 1.0% in 2020 through April 20th but still beat the market by 11 percentage points. Hedge funds were also right about betting on CNC as the stock returned 8.8% in 2020 (through April 20th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
5 Most Popular Stocks Among Hedge Funds
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.

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