Was The Smart Money Right About Molina Healthcare, Inc. (MOH)?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 823 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Molina Healthcare, Inc. (NYSE:MOH) in this article.

Is Molina Healthcare, Inc. (NYSE:MOH) a healthy stock for your portfolio? Hedge funds were taking a bullish view. The number of bullish hedge fund bets went up by 2 recently. Molina Healthcare, Inc. (NYSE:MOH) was in 34 hedge funds’ portfolios at the end of June. The all time high for this statistics is 35. Our calculations also showed that MOH isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 32 hedge funds in our database with MOH holdings at the end of March.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Larry Robbins of Glenview Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best high dividend stocks to buy to identify high dividend stocks with upside potential in this low interest rate environment. 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 website to get excerpts of these letters in your inbox. Keeping this in mind we’re going to analyze the fresh hedge fund action surrounding Molina Healthcare, Inc. (NYSE:MOH).

How are hedge funds trading Molina Healthcare, Inc. (NYSE:MOH)?

At the end of the second quarter, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the first quarter of 2020. By comparison, 32 hedge funds held shares or bullish call options in MOH a year ago. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

The largest stake in Molina Healthcare, Inc. (NYSE:MOH) was held by Renaissance Technologies, which reported holding $654.3 million worth of stock at the end of June. It was followed by Viking Global with a $180.4 million position. Other investors bullish on the company included Iridian Asset Management, Glenview Capital, and D E Shaw. In terms of the portfolio weights assigned to each position Tavio Capital allocated the biggest weight to Molina Healthcare, Inc. (NYSE:MOH), around 21.58% of its 13F portfolio. Iron Triangle Partners is also relatively very bullish on the stock, earmarking 4.48 percent of its 13F equity portfolio to MOH.

As industrywide interest jumped, key money managers were breaking ground themselves. Sectoral Asset Management, managed by Jerome Pfund and Michael Sjostrom, initiated the most valuable position in Molina Healthcare, Inc. (NYSE:MOH). Sectoral Asset Management had $14.9 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $12.5 million position during the quarter. The following funds were also among the new MOH investors: Sander Gerber’s Hudson Bay Capital Management, Principal Global Investors’s Columbus Circle Investors, and Ken Heebner’s Capital Growth Management.

Let’s now take a look at hedge fund activity in other stocks similar to Molina Healthcare, Inc. (NYSE:MOH). We will take a look at Royal Caribbean Group (NYSE:RCL), Avalara, Inc. (NYSE:AVLR), CBOE Global Markets Inc (NASDAQ:CBOE), Huazhu Group Limited (NASDAQ:HTHT), Icahn Enterprises LP (NASDAQ:IEP), Franklin Resources, Inc. (NYSE:BEN), and Essential Utilities Inc (NYSE:WTRG). This group of stocks’ market values are similar to MOH’s market value.

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As you can see these stocks had an average of 24.4 hedge funds with bullish positions and the average amount invested in these stocks was $1999 million. That figure was $1316 million in MOH’s case. Avalara, Inc. (NYSE:AVLR) is the most popular stock in this table. On the other hand Icahn Enterprises LP (NASDAQ:IEP) is the least popular one with only 3 bullish hedge fund positions. Molina Healthcare, Inc. (NYSE:MOH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MOH is 81.7. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and beat the market again by 20.1 percentage points. Unfortunately MOH wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MOH were disappointed as the stock returned 4.8% since the end of June (through 10/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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