What Have Hedge Funds Have To Say About Surgical Care Affiliates Inc (SCAI)

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. The Standard and Poor’s 500 Index returned 7.6% over the 12-month period ending November 21, while more than 51% of the constituents of the index underperformed the benchmark. Hence, a random stock picking process will most likely lead to disappointment. At the same time, the 30 most favored mid-cap stocks by the best performing hedge funds monitored by Insider Monkey generated a return of 18% over the same time span. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Surgical Care Affiliates Inc (NASDAQ:SCAI).

Is Surgical Care Affiliates Inc (NASDAQ:SCAI) going to take off soon? Hedge funds are undeniably in an optimistic mood. The number of long hedge fund positions grew by 4 lately. SCAI was in 16 hedge funds’ portfolios at the end of the third quarter of 2016. There were 12 hedge funds in our database with SCAI positions at the end of the previous quarter. 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 MGE Energy, Inc. (NASDAQ:MGEE), Great Western Bancorp Inc (NYSE:GWB), and TerraForm Power Inc (NASDAQ:TERP) to gather more data points.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.

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What have hedge funds been doing with Surgical Care Affiliates Inc (NASDAQ:SCAI)?

At Q3’s end, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a 33% gain from one quarter earlier. By comparison, 18 hedge funds held shares or bullish call options in SCAI heading into this year, so hedge fund ownership is still down in 2016. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Millennium Management, one of the 10 largest hedge funds in the world, has the biggest position in Surgical Care Affiliates Inc (NASDAQ:SCAI), worth close to $24.3 million. Sitting at the No. 2 spot is Columbus Circle Investors, which holds a $13.7 million position. Remaining professional money managers that hold long positions consist of Phill Gross and Robert Atchinson’s Adage Capital Management, James Dondero’s Highland Capital Management, and Paul Marshall and Ian Wace’s Marshall Wace LLP. We should note that none of these hedge funds are 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 hedge funds were leading the bulls’ herd. Marshall Wace LLP assembled the largest position in Surgical Care Affiliates Inc (NASDAQ:SCAI). Marshall Wace LLP had $6.8 million invested in the company at the end of the quarter. Leighton Welch’s Welch Capital Partners also initiated a $4.5 million position during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Michael Platt and William Reeves’ BlueCrest Capital Mgmt., and John Overdeck and David Siegel’s Two Sigma Advisors.

Let’s go over hedge fund activity in other stocks similar to Surgical Care Affiliates Inc (NASDAQ:SCAI). These stocks are MGE Energy, Inc. (NASDAQ:MGEE), Great Western Bancorp Inc (NYSE:GWB), TerraForm Power Inc (NASDAQ:TERP), and Badger Meter, Inc. (NYSE:BMI). All of these stocks’ market caps match SCAI’s market cap.

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $123 million. That figure was $83 million in SCAI’s case. TerraForm Power Inc (NASDAQ:TERP) is the most popular stock in this table. On the other hand MGE Energy, Inc. (NASDAQ:MGEE) is the least popular one with only 9 bullish hedge fund positions. Surgical Care Affiliates Inc (NASDAQ:SCAI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds like the most. In this regard TERP might be a better candidate to consider taking a long position in.

Disclosure: None