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. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 835 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of December 31st, 2019. 0
Is Universal Health Services, Inc. (NYSE:UHS) undervalued? Money managers are taking an optimistic view. The number of long hedge fund bets advanced by 3 recently. Our calculations also showed that UHS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). UHS was in 31 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 28 hedge funds in our database with UHS positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Cliff Asness of AQR Capital Management
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. Keeping this in mind we’re going to analyze the latest hedge fund action surrounding Universal Health Services, Inc. (NYSE:UHS).
Hedge fund activity in Universal Health Services, Inc. (NYSE:UHS)
At Q4’s end, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in UHS over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, AQR Capital Management held the most valuable stake in Universal Health Services, Inc. (NYSE:UHS), which was worth $183.1 million at the end of the third quarter. On the second spot was Camber Capital Management which amassed $71.7 million worth of shares. GLG Partners, Millennium Management, and Renaissance Technologies 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 Camber Capital Management allocated the biggest weight to Universal Health Services, Inc. (NYSE:UHS), around 3.65% of its 13F portfolio. Sivik Global Healthcare is also relatively very bullish on the stock, designating 2.93 percent of its 13F equity portfolio to UHS.
As aggregate interest increased, some big names were breaking ground themselves. Stevens Capital Management, managed by Matthew Tewksbury, initiated the most outsized position in Universal Health Services, Inc. (NYSE:UHS). Stevens Capital Management had $2.4 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $2.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Tudor Jones’s Tudor Investment Corp, Karim Abbadi and Edward McBride’s Centiva Capital, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Universal Health Services, Inc. (NYSE:UHS) but similarly valued. These stocks are American Airlines Group Inc (NASDAQ:AAL), United Rentals, Inc. (NYSE:URI), InterContinental Hotels Group PLC (NYSE:IHG), and Fidelity National Financial Inc (NYSE:FNF). This group of stocks’ market valuations match UHS’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AAL | 41 | 2005005 | -2 |
| URI | 54 | 1223368 | -5 |
| IHG | 6 | 27333 | -1 |
| FNF | 36 | 357320 | 6 |
| Average | 34.25 | 903257 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.25 hedge funds with bullish positions and the average amount invested in these stocks was $903 million. That figure was $483 million in UHS’s case. United Rentals, Inc. (NYSE:URI) is the most popular stock in this table. On the other hand InterContinental Hotels Group PLC (NYSE:IHG) is the least popular one with only 6 bullish hedge fund positions. Universal Health Services, Inc. (NYSE:UHS) 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 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately UHS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); UHS investors were disappointed as the stock returned -43% 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.
Disclosure: None. This article was originally published at Insider Monkey.
