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 LHC Group, Inc. (NASDAQ:LHCG) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
LHC Group, Inc. (NASDAQ:LHCG) shareholders have witnessed a decrease in support from the world’s most elite money managers in recent months. Our calculations also showed that LHCG 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.
Paul Glazer of Glazer Capital
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind we’re going to review the recent hedge fund action encompassing LHC Group, Inc. (NASDAQ:LHCG).
What have hedge funds been doing with LHC Group, Inc. (NASDAQ:LHCG)?
At Q4’s end, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the third quarter of 2019. By comparison, 27 hedge funds held shares or bullish call options in LHCG a year ago. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Alec Litowitz and Ross Laser’s Magnetar Capital has the largest position in LHC Group, Inc. (NASDAQ:LHCG), worth close to $18.9 million, corresponding to 0.4% of its total 13F portfolio. On Magnetar Capital’s heels is Columbus Circle Investors, led by Principal Global Investors, holding a $15.4 million position; 0.7% of its 13F portfolio is allocated to the stock. Other peers that are bullish comprise Paul Glazer’s Glazer Capital, Isaac Corre’s Governors Lane and Philip Hempleman’s Ardsley Partners. In terms of the portfolio weights assigned to each position Governors Lane allocated the biggest weight to LHC Group, Inc. (NASDAQ:LHCG), around 1.85% of its 13F portfolio. Glazer Capital is also relatively very bullish on the stock, designating 1.8 percent of its 13F equity portfolio to LHCG.
Because LHC Group, Inc. (NASDAQ:LHCG) has faced declining sentiment from the smart money, logic holds that there were a few money managers who sold off their full holdings heading into Q4. At the top of the heap, David Harding’s Winton Capital Management sold off the largest stake of the “upper crust” of funds watched by Insider Monkey, valued at an estimated $5.3 million in call options. D. E. Shaw’s fund, D E Shaw, also said goodbye to its call options, about $2.5 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 3 funds heading into Q4.
Let’s go over hedge fund activity in other stocks similar to LHC Group, Inc. (NASDAQ:LHCG). We will take a look at AutoNation, Inc. (NYSE:AN), MSC Industrial Direct Co Inc (NYSE:MSM), BridgeBio Pharma, Inc. (NASDAQ:BBIO), and nVent Electric plc (NYSE:NVT). This group of stocks’ market caps resemble LHCG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AN | 31 | 409983 | 7 |
| MSM | 30 | 252552 | 6 |
| BBIO | 11 | 1324595 | -1 |
| NVT | 28 | 728891 | 5 |
| Average | 25 | 679005 | 4.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $679 million. That figure was $141 million in LHCG’s case. AutoNation, Inc. (NYSE:AN) is the most popular stock in this table. On the other hand BridgeBio Pharma, Inc. (NASDAQ:BBIO) is the least popular one with only 11 bullish hedge fund positions. LHC Group, Inc. (NASDAQ:LHCG) is not the most popular stock in this group but hedge fund interest is still above average. 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 still beat the market by 5.5 percentage points. Hedge funds were also right about betting on LHCG as the stock returned -8.9% during the first quarter (through March 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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.
