Is It Time to Sell The Ensign Group, Inc. (ENSG)?

Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: The Ensign Group, Inc. (NASDAQ:ENSG).

The Ensign Group, Inc. (NASDAQ:ENSG) was in 9 hedge funds’ portfolios at the end of September. ENSG shareholders have witnessed a decrease in enthusiasm from smart money of late. There were 14 hedge funds in our database with ENSG holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Hercules Technology Growth Capital Inc (NYSE:HTGC), Hannon Armstrong Sustnbl Infrstr Cap Inc (NYSE:HASI), and S & T Bancorp Inc (NASDAQ:STBA) to gather more data points.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

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What have hedge funds been doing with The Ensign Group, Inc. (NASDAQ:ENSG)?

At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a 36% drop from the second quarter of 2016, as hedge fund ownership remains volatile. By comparison, 15 hedge funds held shares or bullish call options in ENSG heading into this year. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Royce & Associates, led by Chuck Royce, holds the largest position in The Ensign Group, Inc. (NASDAQ:ENSG). Royce & Associates has a $14.9 million position in the stock. On Royce & Associates’ heels is Millennium Management, one of the 10 largest hedge funds in the world, which holds a $3 million position. Remaining professional money managers that hold long positions consist of John Petry’s Sessa Capital, Roger Ibbotson’s Zebra Capital Management, and John Overdeck and David Siegel’s Two Sigma Advisors. We should note that Sessa Capital is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

We already know that not all hedge funds are bullish on the stock and some hedge funds actually dumped their positions entirely. Intriguingly, Peter S. Park’s Park West Asset Management dumped the largest stake of the 700 funds followed by Insider Monkey, valued at about $15.3 million in stock, and Jim Simons’ Renaissance Technologies was right behind this move, as the fund said goodbye to about $1.7 million worth of shares.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as The Ensign Group, Inc. (NASDAQ:ENSG) but similarly valued. We will take a look at Hercules Technology Growth Capital Inc (NYSE:HTGC), Hannon Armstrong Sustnbl Infrstr Cap Inc (NYSE:HASI), S & T Bancorp Inc (NASDAQ:STBA), and National HealthCare Corporation (NYSEAMEX:NHC). All of these stocks’ market caps are closest to ENSG’s market cap.

As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $23 million. That figure was $24 million in ENSG’s case. Hercules Technology Growth Capital Inc (NYSE:HTGC) is the most popular stock in this table. On the other hand Hannon Armstrong Sustnbl Infrstr Cap Inc (NYSE:HASI) is the least popular one with only 5 bullish hedge fund positions. The Ensign Group, Inc. (NASDAQ:ENSG) 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. In this regard HTGC might be a better candidate to consider taking a long position in.

Disclosure: None