Were Hedge Funds Right About AdaptHealth Corp. (AHCO)?

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. Insider Monkey finished processing 866 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of March 31st, 2020. In this article we are going to take a look at smart money sentiment towards AdaptHealth Corp. (NASDAQ:AHCO).

Is AdaptHealth Corp. (NASDAQ:AHCO) a bargain? The best stock pickers were in a pessimistic mood. The number of long hedge fund positions shrunk by 6 lately. AdaptHealth Corp. (NASDAQ:AHCO) was in 17 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 23. Our calculations also showed that AHCO isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

James E. Flynn of Deerfield Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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. Keeping this in mind let’s take a glance at the latest hedge fund action encompassing AdaptHealth Corp. (NASDAQ:AHCO).

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

At Q1’s end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -26% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AHCO over the last 23 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, James E. Flynn’s Deerfield Management has the most valuable position in AdaptHealth Corp. (NASDAQ:AHCO), worth close to $83.7 million, corresponding to 1.8% of its total 13F portfolio. The second most bullish fund manager is Polar Capital, led by Brian Ashford-Russell and Tim Woolley, holding a $70.4 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions consist of Richard Driehaus’s Driehaus Capital, Anand Parekh’s Alyeska Investment Group and Benjamin Natter’s Kent Lake Capital. In terms of the portfolio weights assigned to each position Kent Lake Capital allocated the biggest weight to AdaptHealth Corp. (NASDAQ:AHCO), around 7.48% of its 13F portfolio. Endurant Capital Management is also relatively very bullish on the stock, earmarking 3.83 percent of its 13F equity portfolio to AHCO.

Due to the fact that AdaptHealth Corp. (NASDAQ:AHCO) has faced bearish sentiment from the aggregate hedge fund industry, we can see that there was a specific group of hedgies that decided to sell off their full holdings in the first quarter. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace LLP cut the biggest stake of all the hedgies tracked by Insider Monkey, valued at about $25.9 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund dumped about $19 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 6 funds in the first quarter.

Let’s go over hedge fund activity in other stocks similar to AdaptHealth Corp. (NASDAQ:AHCO). We will take a look at World Wrestling Entertainment, Inc. (NYSE:WWE), 51job, Inc. (NASDAQ:JOBS), UniFirst Corp (NYSE:UNF), PNM Resources, Inc. (NYSE:PNM), Axis Capital Holdings Limited (NYSE:AXS), Black Hills Corporation (NYSE:BKH), and WD-40 Company (NASDAQ:WDFC). This group of stocks’ market valuations are similar to AHCO’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.1 hedge funds with bullish positions and the average amount invested in these stocks was $288 million. That figure was $307 million in AHCO’s case. PNM Resources, Inc. (NYSE:PNM) is the most popular stock in this table. On the other hand WD-40 Company (NASDAQ:WDFC) is the least popular one with only 14 bullish hedge fund positions. AdaptHealth Corp. (NASDAQ:AHCO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AHCO is 33.7. 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 negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 28.5% in 2021 through July 23rd and surpassed the market again by 10.1 percentage points. Unfortunately AHCO wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); AHCO investors were disappointed as the stock returned -39.3% since the end of March (through 7/23) 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 in 2021.

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