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. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Acadia Healthcare Company Inc (NASDAQ:ACHC) in this article.
Acadia Healthcare Company Inc (NASDAQ:ACHC) investors should pay attention to an increase in support from the world’s most elite money managers of late. ACHC was in 28 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 22 hedge funds in our database with ACHC positions at the end of the previous quarter. Our calculations also showed that ACHC 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.
Didric Cederholm of Lion Point Capital
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Now let’s take a gander at the latest hedge fund action surrounding Acadia Healthcare Company Inc (NASDAQ:ACHC).
What does smart money think about Acadia Healthcare Company Inc (NASDAQ:ACHC)?
Heading into the first quarter of 2020, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 27% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ACHC over the last 18 quarters. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
Among these funds, P2 Capital Partners held the most valuable stake in Acadia Healthcare Company Inc (NASDAQ:ACHC), which was worth $185.2 million at the end of the third quarter. On the second spot was Elliott Management which amassed $144.5 million worth of shares. Abrams Bison Investments, Blue Harbour Group, and Lion Point 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 P2 Capital Partners allocated the biggest weight to Acadia Healthcare Company Inc (NASDAQ:ACHC), around 13.58% of its 13F portfolio. Abrams Bison Investments is also relatively very bullish on the stock, dishing out 11.51 percent of its 13F equity portfolio to ACHC.
Consequently, specific money managers were leading the bulls’ herd. Blue Harbour Group, managed by Clifton S. Robbins, established the most valuable position in Acadia Healthcare Company Inc (NASDAQ:ACHC). Blue Harbour Group had $62 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $8.8 million position during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Michael Doheny’s Freshford Capital Management, and D. E. Shaw’s D E Shaw.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Acadia Healthcare Company Inc (NASDAQ:ACHC) but similarly valued. These stocks are Methanex Corporation (NASDAQ:MEOH), Builders FirstSource, Inc. (NASDAQ:BLDR), Advanced Disposal Services, Inc. (NYSE:ADSW), and Hilton Grand Vacations Inc. (NYSE:HGV). This group of stocks’ market values match ACHC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MEOH | 16 | 195583 | 0 |
| BLDR | 40 | 535140 | 1 |
| ADSW | 22 | 655764 | -2 |
| HGV | 46 | 1039360 | 3 |
| Average | 31 | 606462 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31 hedge funds with bullish positions and the average amount invested in these stocks was $606 million. That figure was $655 million in ACHC’s case. Hilton Grand Vacations Inc. (NYSE:HGV) is the most popular stock in this table. On the other hand Methanex Corporation (NASDAQ:MEOH) is the least popular one with only 16 bullish hedge fund positions. Acadia Healthcare Company Inc (NASDAQ:ACHC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately ACHC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ACHC investors were disappointed as the stock returned -58.5% 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 most of these stocks already outperformed the market in Q1.
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.
