National HealthCare Corporation (NHC): Are Hedge Funds Right About This Stock?

Before we spend days researching a stock idea we’d like to take a look at how hedge funds and billionaire investors recently traded that stock. S&P 500 Index returned about 5.2% during the last 12 months ending October 30, 2015. Less than 49% of the stocks in the index outperformed the index. This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 30 S&P 500 stocks among hedge funds at the end of September 2014 had an average return of 9.5% during the same period. Sixty three percent of these 30 stocks outperformed the market. Hedge funds had bad stock picks like everyone else. Micron, which lost 50% over this period, was one of hedge funds’ 30 favorite S&P 500 stocks. Anadarko Petroleum was another failed stock pick which lost more than 26%. So, taking cues from hedge funds isn’t a foolproof strategy, but it seems to work on average. In this article, we will take a look at what hedge funds think about National HealthCare Corporation (NYSEMKT:NHC).

National HealthCare Corporation (NYSEMKT:NHC) has seen an increase in activity from the world’s largest hedge funds in recent months. NHC was in an 8 hedge funds’ portfolios at the end of the third quarter of 2015. There were 6 hedge funds in our database with NHC positions 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 Monotype Imaging Holdings Inc. (NASDAQ:TYPE), Denbury Resources Inc. (NYSE:DNR), and Zafgen Inc (NASDAQ:ZFGN) to gather more data points.

With all of this in mind, let’s go over the latest action regarding National HealthCare Corporation (NYSEMKT:NHC).

Hedge fund activity in National HealthCare Corporation (NYSEMKT:NHC)

At the end of the third quarter, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from one quarter earlier. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Jim Simons’ Renaissance Technologies has the number one position in National HealthCare Corporation (NYSEMKT:NHC), worth close to $16 million, accounting for less than 0.1% of its total 13F portfolio. The second most bullish fund manager is Gotham Asset Management, managed by Joel Greenblatt, which holds a $1.3 million position; less than 0.1% of its 13F portfolio is allocated to the company. Some other professional money managers that hold long positions contain Matthew Hulsizer’s PEAK6 Capital Management, and Roger Ibbotson’s Zebra Capital Management.

As one would reasonably expect, key money managers have been driving this bullishness. Gotham Asset Management, managed by Joel Greenblatt, initiated the biggest position in National HealthCare Corporation (NYSEMKT:NHC). Gotham Asset Management had $1.3 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $0.5 million position during the quarter.

Let’s also examine hedge fund activity in other stocks similar to National HealthCare Corporation (NYSEAMEX:NHC). These stocks are Monotype Imaging Holdings Inc. (NASDAQ:TYPE), Denbury Resources Inc. (NYSE:DNR), Zafgen Inc (NASDAQ:ZFGN), and PharMerica Corporation (NYSE:PMC). All of these stocks’ market caps are similar to NHC’s market cap.

As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $82 million. That figure was $21 million in NHC’s case. PharMerica Corporation (NYSE:PMC) is the most popular stock in this table. On the other hand Monotype Imaging Holdings Inc. (NASDAQ:TYPE) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks National HealthCare Corporation (NYSEMKT:NHC) is even less popular than TYPE. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.