Was The Smart Money Right About Change Healthcare Inc. (CHNG)?

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. We have processed the filings of the more than 887 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31st holdings, data that is available nowhere else. Should you consider Change Healthcare Inc. (NASDAQ:CHNG) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.

Change Healthcare Inc. (NASDAQ:CHNG) investors should pay attention to a decrease in support from the world’s most elite money managers recently. Change Healthcare Inc. (NASDAQ:CHNG) was in 45 hedge funds’ portfolios at the end of December. The all time high for this statistic waspreviously 49. There were 49 hedge funds in our database with CHNG positions at the end of the third quarter. Our calculations also showed that CHNG isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

To most market participants, hedge funds are viewed as slow, outdated financial tools of years past. While there are greater than 8000 funds with their doors open today, Our experts look at the masters of this club, around 850 funds. It is estimated that this group of investors shepherd the majority of the hedge fund industry’s total asset base, and by monitoring their inimitable stock picks, Insider Monkey has unearthed various investment strategies that have historically outpaced the broader indices. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Also, our monthly newsletter’s portfolio of long stock picks returned 197% since March 2017 (through March 2021) and beat the S&P 500 Index by 124 percentage points. You can download a sample issue of this newsletter on our website .

Ricky Sandler of Eminence Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we’re going to take a glance at the new hedge fund action surrounding Change Healthcare Inc. (NASDAQ:CHNG).

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

At Q4’s end, a total of 45 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the third quarter of 2020. By comparison, 25 hedge funds held shares or bullish call options in CHNG a year ago. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

The largest stake in Change Healthcare Inc. (NASDAQ:CHNG) was held by Camber Capital Management, which reported holding $242.5 million worth of stock at the end of December. It was followed by Eminence Capital with a $156.4 million position. Other investors bullish on the company included Cardinal Capital, P2 Capital Partners, and Greenlight Capital. In terms of the portfolio weights assigned to each position Camber Capital Management allocated the biggest weight to Change Healthcare Inc. (NASDAQ:CHNG), around 8.51% of its 13F portfolio. P2 Capital Partners is also relatively very bullish on the stock, setting aside 7.62 percent of its 13F equity portfolio to CHNG.

Due to the fact that Change Healthcare Inc. (NASDAQ:CHNG) has experienced declining sentiment from the aggregate hedge fund industry, we can see that there is a sect of hedge funds who sold off their positions entirely in the fourth quarter. It’s worth mentioning that Jeffrey Jacobowitz’s Simcoe Capital Management sold off the biggest investment of the 750 funds watched by Insider Monkey, totaling close to $32.3 million in stock, and Eli Samaha’s Madison Avenue Partners was right behind this move, as the fund said goodbye to about $16.5 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 4 funds in the fourth quarter.

Let’s also examine hedge fund activity in other stocks similar to Change Healthcare Inc. (NASDAQ:CHNG). These stocks are Duck Creek Technologies, Inc. (NASDAQ:DCT), Huaneng Power International Inc (NYSE:HNP), Skechers USA Inc (NYSE:SKX), TCF Financial Corporation (NYSE:TCF), Texas Pacific Land Trust (NYSE:TPL), Marriott Vacations Worldwide Corporation (NYSE:VAC), and Helen of Troy Limited (NASDAQ:HELE). All of these stocks’ market caps match CHNG’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.1 hedge funds with bullish positions and the average amount invested in these stocks was $425 million. That figure was $1503 million in CHNG’s case. Skechers USA Inc (NYSE:SKX) is the most popular stock in this table. On the other hand Huaneng Power International Inc (NYSE:HNP) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Change Healthcare Inc. (NASDAQ:CHNG) is more popular among hedge funds. Our overall hedge fund sentiment score for CHNG is 78.6. 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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks returned 13.6% in 2021 through April 30th but still managed to beat the market by 1.6 percentage points. Hedge funds were also right about betting on CHNG as the stock returned 23.1% since the end of December (through 4/30) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

Follow Insider Monkey on Twitter