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. Keeping this in mind, let’s take a look at whether Tenet Healthcare Corp (NYSE:THC) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Tenet Healthcare Corp (NYSE:THC) shareholders have witnessed an increase in hedge fund interest of late. Our calculations also showed that THC 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).
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Larry Robbins of Glenview 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. With all of this in mind let’s take a glance at the recent hedge fund action regarding Tenet Healthcare Corp (NYSE:THC).
What does smart money think about Tenet Healthcare Corp (NYSE:THC)?
Heading into the first quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 31% from the previous quarter. On the other hand, there were a total of 35 hedge funds with a bullish position in THC a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Glenview Capital was the largest shareholder of Tenet Healthcare Corp (NYSE:THC), with a stake worth $750.5 million reported as of the end of September. Trailing Glenview Capital was Nantahala Capital Management, which amassed a stake valued at $98.8 million. Camber Capital Management, Cyrus Capital Partners, and Redwood Capital Management 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 Nut Tree Capital allocated the biggest weight to Tenet Healthcare Corp (NYSE:THC), around 19.06% of its 13F portfolio. Cyrus Capital Partners is also relatively very bullish on the stock, setting aside 8.73 percent of its 13F equity portfolio to THC.
With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the most outsized position in Tenet Healthcare Corp (NYSE:THC). Arrowstreet Capital had $9.9 million invested in the company at the end of the quarter. Joseph Mathias’s Concourse Capital Management also made a $2.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Bhagwan Jay Rao’s Integral Health Asset Management, Donald Sussman’s Paloma Partners, and Michael Kharitonov and Jon David McAuliffe’s Voleon Capital.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Tenet Healthcare Corp (NYSE:THC) but similarly valued. We will take a look at LendingTree, Inc (NASDAQ:TREE), Blueprint Medicines Corporation (NASDAQ:BPMC), CarGurus, Inc. (NASDAQ:CARG), and HUYA Inc. (NYSE:HUYA). This group of stocks’ market valuations match THC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TREE | 26 | 104147 | 3 |
| BPMC | 37 | 786766 | 10 |
| CARG | 33 | 936090 | 11 |
| HUYA | 21 | 305224 | -1 |
| Average | 29.25 | 533057 | 5.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $533 million. That figure was $1171 million in THC’s case. Blueprint Medicines Corporation (NASDAQ:BPMC) is the most popular stock in this table. On the other hand HUYA Inc. (NYSE:HUYA) is the least popular one with only 21 bullish hedge fund positions. Tenet Healthcare Corp (NYSE:THC) 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 lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately THC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on THC were disappointed as the stock returned -52.7% 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.
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.
