Should I Avoid Magellan Health Inc (MGLN)?

In this article we are going to use hedge fund sentiment as a tool and determine whether Magellan Health Inc (NASDAQ:MGLN) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is Magellan Health Inc (NASDAQ:MGLN) a buy here? The best stock pickers were becoming less hopeful. The number of bullish hedge fund positions were trimmed by 3 recently. Magellan Health Inc (NASDAQ:MGLN) was in 23 hedge funds’ portfolios at the end of September. The all time high for this statistic is 26. Our calculations also showed that MGLN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

James Dondero of Highland Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now we’re going to take a look at the recent hedge fund action surrounding Magellan Health Inc (NASDAQ:MGLN).

Do Hedge Funds Think MGLN Is A Good Stock To Buy Now?

At the end of September, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MGLN over the last 25 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Jeffrey Smith’s Starboard Value LP has the number one position in Magellan Health Inc (NASDAQ:MGLN), worth close to $224 million, accounting for 4.1% of its total 13F portfolio. The second most bullish fund manager is Magnetar Capital, managed by Alec Litowitz and Ross Laser, which holds a $115 million position; the fund has 1.2% of its 13F portfolio invested in the stock. Other peers that hold long positions include Robert Emil Zoellner’s Alpine Associates, James Dondero’s Highland Capital Management and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Highland Capital Management allocated the biggest weight to Magellan Health Inc (NASDAQ:MGLN), around 7.55% of its 13F portfolio. Moab Capital Partners is also relatively very bullish on the stock, designating 4.98 percent of its 13F equity portfolio to MGLN.

Since Magellan Health Inc (NASDAQ:MGLN) has faced bearish sentiment from the smart money, it’s safe to say that there was a specific group of funds who were dropping their positions entirely last quarter. It’s worth mentioning that Paul Glazer’s Glazer Capital said goodbye to the biggest investment of the 750 funds monitored by Insider Monkey, worth close to $141.3 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund said goodbye to about $10.8 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 3 funds last quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Magellan Health Inc (NASDAQ:MGLN) but similarly valued. We will take a look at Agiliti Inc. (NYSE:AGTI), The St. Joe Company (NYSE:JOE), Fortress Transprtn and Infr Investrs LLC (NYSE:FTAI), RLJ Lodging Trust (NYSE:RLJ), HeadHunter Group PLC (NASDAQ:HHR), Microvast Holdings Inc. (NASDAQ:MVST), and Moog Inc (NYSE:MOG). This group of stocks’ market valuations resemble MGLN’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.3 hedge funds with bullish positions and the average amount invested in these stocks was $255 million. That figure was $620 million in MGLN’s case. Microvast Holdings Inc. (NASDAQ:MVST) is the most popular stock in this table. On the other hand Agiliti Inc. (NYSE:AGTI) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Magellan Health Inc (NASDAQ:MGLN) is more popular among hedge funds. Our overall hedge fund sentiment score for MGLN is 78.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 31.1% in 2021 through December 9th and still beat the market by 5.1 percentage points. Unfortunately MGLN wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on MGLN were disappointed as the stock returned -0.2% since the end of the third quarter (through 12/9) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.

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