Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Molina Healthcare, Inc. (NYSE:MOH) and compare its performance to hedge funds’ consensus picks in 2019.
Molina Healthcare, Inc. (NYSE:MOH) investors should pay attention to a decrease in hedge fund sentiment of late. Our calculations also showed that MOH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind let’s take a glance at the key hedge fund action regarding Molina Healthcare, Inc. (NYSE:MOH).
How are hedge funds trading Molina Healthcare, Inc. (NYSE:MOH)?
Heading into the fourth quarter of 2019, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -22% from the second quarter of 2019. On the other hand, there were a total of 30 hedge funds with a bullish position in MOH a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Molina Healthcare, Inc. (NYSE:MOH), with a stake worth $466.2 million reported as of the end of September. Trailing Renaissance Technologies was Viking Global, which amassed a stake valued at $161.3 million. Iridian Asset Management, AQR Capital Management, and Partner Fund 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 Tavio Capital allocated the biggest weight to Molina Healthcare, Inc. (NYSE:MOH), around 12.87% of its 13F portfolio. Iridian Asset Management is also relatively very bullish on the stock, setting aside 2.04 percent of its 13F equity portfolio to MOH.
Due to the fact that Molina Healthcare, Inc. (NYSE:MOH) has experienced falling interest from hedge fund managers, logic holds that there exists a select few hedgies that elected to cut their full holdings heading into Q4. At the top of the heap, Ken Griffin’s Citadel Investment Group dropped the biggest stake of the “upper crust” of funds watched by Insider Monkey, totaling close to $17.4 million in call options. Israel Englander’s fund, Millennium Management, also said goodbye to its call options, about $17.2 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 7 funds heading into Q4.
Let’s check out hedge fund activity in other stocks similar to Molina Healthcare, Inc. (NYSE:MOH). We will take a look at Owens Corning (NYSE:OC), WABCO Holdings Inc. (NYSE:WBC), Starwood Property Trust, Inc. (NYSE:STWD), and Algonquin Power & Utilities Corp. (NYSE:AQN). All of these stocks’ market caps resemble MOH’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| OC | 40 | 1305624 | 6 |
| WBC | 29 | 1218154 | -4 |
| STWD | 18 | 158291 | 4 |
| AQN | 15 | 211065 | 6 |
| Average | 25.5 | 723284 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $723 million. That figure was $1040 million in MOH’s case. Owens Corning (NYSE:OC) is the most popular stock in this table. On the other hand Algonquin Power & Utilities Corp. (NYSE:AQN) is the least popular one with only 15 bullish hedge fund positions. Molina Healthcare, Inc. (NYSE:MOH) 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. Unfortunately MOH wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MOH investors were disappointed as the stock returned 16.8% in 2019 and trailed 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 65 percent of these stocks already outperformed the market in 2019.
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.
