Coronavirus is probably the #1 concern in investors’ minds right now. It should be. We estimate that COVID-19 will kill around 5 million people worldwide and there is a 3.3% probability that Donald Trump will die from the new coronavirus (read the details). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not Centene Corporation (NYSE:CNC) makes for a good investment right now.
Centene Corporation (NYSE:CNC) has experienced an increase in activity from the world’s largest hedge funds lately. CNC was in 62 hedge funds’ portfolios at the end of December. There were 59 hedge funds in our database with CNC holdings at the end of the previous quarter. 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 below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 of Viking Global
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now we’re going to analyze the latest hedge fund action encompassing Centene Corporation (NYSE:CNC).
What does smart money think about Centene Corporation (NYSE:CNC)?
Heading into the first quarter of 2020, a total of 62 of the hedge funds tracked by Insider Monkey were bullish on 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’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
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.
Now, some big names were leading the bulls’ herd. Lyrical Asset Management, managed by Andrew Wellington and Jeff Keswin, established the biggest 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 made a $94.6 million investment in the stock during the quarter. The following funds were also among the new CNC investors: 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 check out hedge fund activity in other stocks – not necessarily in the same industry as Centene Corporation (NYSE:CNC) but similarly valued. 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 values are closest to CNC’s market value.
| 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. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks also gained 0.1% in 2020 through March 2nd and beat the market by 4.1 percentage points. Unfortunately CNC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CNC were disappointed as the stock returned -11.8% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
