Should You Add Sabra Health Care REIT Inc (SBRA) to Your Portfolio?

The successful funds run by legendary investors such as Dan Loeb and David Tepper make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentive to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Sabra Health Care REIT Inc (NASDAQ:SBRA) from the perspective of those successful funds.

Is Sabra Health Care REIT Inc (NASDAQ:SBRA) going to take off soon? The best stock pickers seem to be in an optimistic mood. The number of long hedge fund investments moved up by one during the third quarter. In this way, there were 12 hedge funds in our database with SBRA positions at the end of September. 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 Ophthotech Corp (NASDAQ:OPHT), Liberty Tripadvisor Holdings Inc (NASDAQ:LTRPA), and Houghton Mifflin Harcourt Co (NASDAQ:HMHC) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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Keeping this in mind, let’s take a gander at the latest action encompassing Sabra Health Care REIT Inc (NASDAQ:SBRA).

What does the smart money think about Sabra Health Care REIT Inc (NASDAQ:SBRA)?

At the end of the third quarter, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SBRA over the last five quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Forward Management, led by J. Alan Reid, Jr., holds the number one position in Sabra Health Care REIT Inc (NASDAQ:SBRA). Forward Management has a $46.9 million position in the stock, comprising 3.6% of its 13F portfolio. Sitting at the No. 2 spot is Millennium Management, one of the 10 largest hedge funds in the world, holding a $20.5 million position; less than 0.1% of its 13F portfolio is allocated to the stock. Some other peers that are bullish contain John Overdeck and David Siegel’s Two Sigma Advisors, Brian Ashford-Russell and Tim Woolley’s Polar Capital, and Cliff Asness’ AQR Capital Management. We should note that Forward Management is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

As one would reasonably expect, key money managers were breaking ground themselves. Stevens Capital Management, led by Matthew Tewksbury, established the largest position in Sabra Health Care REIT Inc (NASDAQ:SBRA). Stevens Capital Management had $0.7 million invested in the company at the end of the quarter. Mike Vranos’ Ellington also made a $0.4 million investment in the stock during the quarter. The only other fund with a new position in the stock is Paul Tudor Jones’s Tudor Investment Corp.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Sabra Health Care REIT Inc (NASDAQ:SBRA) but similarly valued. We will take a look at Ophthotech Corp (NASDAQ:OPHT), Liberty Tripadvisor Holdings Inc (NASDAQ:LTRPA), Houghton Mifflin Harcourt Co (NASDAQ:HMHC), and Xenia Hotels & Resorts Inc (NYSE:XHR). This group of stocks’ market caps are similar to SBRA’s market cap.

As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $406 million. That figure was $79 million in SBRA’s case. Ophthotech Corp (NASDAQ:OPHT) is the most popular stock in this table. On the other hand Xenia Hotels & Resorts Inc (NYSE:XHR) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Sabra Health Care REIT Inc (NASDAQ:SBRA) is even less popular than XHR. 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.

Disclosure: none