How do you pick the next stock to invest in? One way would be to spend hours of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding WellCare Health Plans, Inc. (NYSE:WCG).
Is WellCare Health Plans, Inc. (NYSE:WCG) a worthy investment today? The best stock pickers are taking an optimistic view. The number of bullish hedge fund bets moved up by 8 lately. Our calculations also showed that wcg isn’t among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s view the recent hedge fund action encompassing WellCare Health Plans, Inc. (NYSE:WCG).
How have hedgies been trading WellCare Health Plans, Inc. (NYSE:WCG)?
At Q1’s end, a total of 47 of the hedge funds tracked by Insider Monkey were long this stock, a change of 21% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards WCG over the last 15 quarters. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
More specifically, Viking Global was the largest shareholder of WellCare Health Plans, Inc. (NYSE:WCG), with a stake worth $356.2 million reported as of the end of March. Trailing Viking Global was Pentwater Capital Management, which amassed a stake valued at $290 million. Citadel Investment Group, Magnetar Capital, and Sachem Head Capital were also very fond of the stock, giving the stock large weights in their portfolios.
As one would reasonably expect, some big names were breaking ground themselves. Pentwater Capital Management, managed by Matthew Halbower, initiated the most outsized position in WellCare Health Plans, Inc. (NYSE:WCG). Pentwater Capital Management had $290 million invested in the company at the end of the quarter. Scott Ferguson’s Sachem Head Capital also made a $95.8 million investment in the stock during the quarter. The following funds were also among the new WCG investors: Christopher James’s Partner Fund Management, John Paulson’s Paulson & Co, and Christopher James’s Partner Fund Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as WellCare Health Plans, Inc. (NYSE:WCG) but similarly valued. We will take a look at Conagra Brands, Inc. (NYSE:CAG), Live Nation Entertainment, Inc. (NYSE:LYV), Seagate Technology plc (NASDAQ:STX), and Huntington Bancshares Incorporated (NASDAQ:HBAN). This group of stocks’ market valuations match WCG’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CAG | 33 | 811917 | 0 |
| LYV | 39 | 1020951 | 2 |
| STX | 24 | 2033293 | -2 |
| HBAN | 28 | 100376 | 0 |
| Average | 31 | 991634 | 0 |
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 $992 million. That figure was $1899 million in WCG’s case. Live Nation Entertainment, Inc. (NYSE:LYV) is the most popular stock in this table. On the other hand Seagate Technology plc (NASDAQ:STX) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks WellCare Health Plans, Inc. (NYSE:WCG) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on WCG as the stock returned 2.5% during the same period and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
