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Were Hedge Funds Right About Piling Into Centene Corporation (CNC)

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Centene Corporation (NYSE:CNC) and determine whether the smart money was really smart about this stock.

Is Centene Corporation (NYSE:CNC) a buy here? Prominent investors were in a bullish mood. The number of long hedge fund positions went up by 4 recently. Our calculations also showed that CNC isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the 21st century investor’s toolkit there are a lot of tools investors use to assess their stock investments. Some of the less known tools are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the top picks of the best money managers can beat the market by a superb margin (see the details here).

Andreas Halvorsen

Andreas Halvorsen of Viking Global

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s go over the new hedge fund action surrounding Centene Corporation (NYSE:CNC).

What does smart money think about Centene Corporation (NYSE:CNC)?

At the end of the first quarter, a total of 66 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from one quarter earlier. By comparison, 58 hedge funds held shares or bullish call options in CNC a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Viking Global, managed by Andreas Halvorsen, holds the biggest position in Centene Corporation (NYSE:CNC). Viking Global has a $964.3 million position in the stock, comprising 5% of its 13F portfolio. On Viking Global’s heels is Farallon Capital, holding a $430.7 million position; the fund has 3.8% of its 13F portfolio invested in the stock. Remaining peers with similar optimism encompass Dan Loeb’s Third Point, Andrew Wellington and Jeff Keswin’s Lyrical Asset Management and John Smith Clark’s Southpoint Capital Advisors. In terms of the portfolio weights assigned to each position Tavio Capital allocated the biggest weight to Centene Corporation (NYSE:CNC), around 17.6% of its 13F portfolio. Courage Capital is also relatively very bullish on the stock, designating 10.74 percent of its 13F equity portfolio to CNC.

As aggregate interest increased, key money managers were leading the bulls’ herd. Farallon Capital, created the most valuable position in Centene Corporation (NYSE:CNC). Farallon Capital had $430.7 million invested in the company at the end of the quarter. Samuel Isaly’s OrbiMed Advisors also made a $79.4 million investment in the stock during the quarter. The following funds were also among the new CNC investors: Steve Cohen’s Point72 Asset Management, Kevin D. Eng’s Columbus Hill Capital Management, and Patrick Degorce’s Theleme Partners.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Centene Corporation (NYSE:CNC) but similarly valued. We will take a look at Baidu, Inc. (NASDAQ:BIDU), Infosys Limited (NYSE:INFY), Public Storage (NYSE:PSA), and Autodesk, Inc. (NASDAQ:ADSK). 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
BIDU 49 2234830 -11
INFY 27 970629 2
PSA 27 807200 0
ADSK 65 2597838 1
Average 42 1652624 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 42 hedge funds with bullish positions and the average amount invested in these stocks was $1653 million. That figure was $3533 million in CNC’s case. Autodesk, Inc. (NASDAQ:ADSK) is the most popular stock in this table. On the other hand Infosys Limited (NYSE:INFY) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Centene Corporation (NYSE:CNC) is more popular among hedge funds. 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 gained 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. Unfortunately CNC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CNC were disappointed as the stock returned 6.6% during the second quarter (through June 25th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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