In this article we will check out the progression of hedge fund sentiment towards Change Healthcare Inc. (NASDAQ:CHNG) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Change Healthcare Inc. (NASDAQ:CHNG) investors should be aware of a decrease in enthusiasm from smart money lately. Change Healthcare Inc. (NASDAQ:CHNG) was in 51 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 56. Our calculations also showed that CHNG isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Joel Greenblatt of Gotham Asset Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, billionaire John Paulson is loading up on the miners, so we are checking out stock pitches like this mining 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 look at the fresh hedge fund action encompassing Change Healthcare Inc. (NASDAQ:CHNG).
Do Hedge Funds Think CHNG Is A Good Stock To Buy Now?
At Q2’s end, a total of 51 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards CHNG over the last 24 quarters. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
The largest stake in Change Healthcare Inc. (NASDAQ:CHNG) was held by Abrams Capital Management, which reported holding $321.3 million worth of stock at the end of June. It was followed by Pentwater Capital Management with a $207.5 million position. Other investors bullish on the company included Magnetar Capital, Park West Asset Management, and Laurion Capital Management. In terms of the portfolio weights assigned to each position Abrams Capital Management allocated the biggest weight to Change Healthcare Inc. (NASDAQ:CHNG), around 7.14% of its 13F portfolio. Greenlight Capital is also relatively very bullish on the stock, dishing out 4.99 percent of its 13F equity portfolio to CHNG.
Because Change Healthcare Inc. (NASDAQ:CHNG) has experienced declining sentiment from the smart money, we can see that there exists a select few fund managers who were dropping their entire stakes heading into Q3. Intriguingly, Amy Minella’s Cardinal Capital said goodbye to the biggest investment of all the hedgies watched by Insider Monkey, valued at close to $31.1 million in stock. Paul Glazer’s fund, Glazer Capital, also dumped its stock, about $6.8 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 5 funds heading into Q3.
Let’s also examine hedge fund activity in other stocks similar to Change Healthcare Inc. (NASDAQ:CHNG). These stocks are Nikola Corporation (NASDAQ:NKLA), Toll Brothers Inc (NYSE:TOL), Cullen/Frost Bankers, Inc. (NYSE:CFR), Axalta Coating Systems Ltd (NYSE:AXTA), Digital Turbine Inc (NASDAQ:APPS), Ascendis Pharma A/S (NASDAQ:ASND), and Brooks Automation, Inc. (NASDAQ:BRKS). This group of stocks’ market values resemble CHNG’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NKLA | 12 | 389494 | -7 |
| TOL | 32 | 800434 | 2 |
| CFR | 13 | 32297 | 2 |
| AXTA | 47 | 1489747 | 4 |
| APPS | 30 | 325569 | 8 |
| ASND | 29 | 2290305 | 1 |
| BRKS | 32 | 510367 | 7 |
| Average | 27.9 | 834030 | 2.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.9 hedge funds with bullish positions and the average amount invested in these stocks was $834 million. That figure was $1840 million in CHNG’s case. Axalta Coating Systems Ltd (NYSE:AXTA) 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. Compared to these stocks Change Healthcare Inc. (NASDAQ:CHNG) is more popular among hedge funds. Our overall hedge fund sentiment score for CHNG is 77.3. 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. 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 through November 5th and still beat the market by 3.1 percentage points. Unfortunately CHNG wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on CHNG were disappointed as the stock returned -6.9% since the end of the second quarter (through 11/5) 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 most of these stocks already outperformed the market since 2019.
Follow Change Healthcare Inc. (NASDAQ:CHNG)
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Disclosure: None. This article was originally published at Insider Monkey.
