Where Do Hedge Funds Stand On Change Healthcare Inc. (CHNG)?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Change Healthcare Inc. (NASDAQ:CHNG).

Is Change Healthcare Inc. (NASDAQ:CHNG) worth your attention right now? Hedge funds were betting on the stock. The number of long hedge fund bets advanced by 11 recently. Change Healthcare Inc. (NASDAQ:CHNG) was in 56 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic was previously 49. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that CHNG isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

If you’d ask most market participants, hedge funds are seen as unimportant, outdated investment vehicles of years past. While there are over 8000 funds with their doors open at present, Our researchers choose to focus on the upper echelon of this group, around 850 funds. Most estimates calculate that this group of people administer the majority of the hedge fund industry’s total capital, and by tracking their first-class equity investments, Insider Monkey has spotted various investment strategies that have historically defeated the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Also, our monthly newsletter’s portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

David Abrams of Abrams Capital Management

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. Keeping this in mind we’re going to review the key hedge fund action regarding Change Healthcare Inc. (NASDAQ:CHNG).

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

At the end of the first quarter, a total of 56 of the hedge funds tracked by Insider Monkey were long this stock, a change of 24% from the fourth quarter of 2020. Below, you can check out the change in hedge fund sentiment towards CHNG over the last 23 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

More specifically, Abrams Capital Management was the largest shareholder of Change Healthcare Inc. (NASDAQ:CHNG), with a stake worth $274 million reported as of the end of March. Trailing Abrams Capital Management was Camber Capital Management, which amassed a stake valued at $248.6 million. Pentwater Capital Management, Magnetar Capital, and Laurion Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Camber Capital Management allocated the biggest weight to Change Healthcare Inc. (NASDAQ:CHNG), around 8.53% of its 13F portfolio. Abrams Capital Management is also relatively very bullish on the stock, earmarking 6.17 percent of its 13F equity portfolio to CHNG.

With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Abrams Capital Management, managed by David Abrams, established the most outsized position in Change Healthcare Inc. (NASDAQ:CHNG). Abrams Capital Management had $274 million invested in the company at the end of the quarter. Robert Emil Zoellner’s Alpine Associates also initiated a $78 million position during the quarter. The following funds were also among the new CHNG investors: Carl Tiedemann and Michael Tiedemann’s TIG Advisors, John Orrico’s Water Island Capital, and Steven Clark’s Omni Partners.

Let’s check out hedge fund activity in other stocks similar to Change Healthcare Inc. (NASDAQ:CHNG). These stocks are Stifel Financial Corp. (NYSE:SF), Planet Fitness Inc (NYSE:PLNT), Texas Roadhouse Inc (NASDAQ:TXRH), C3.ai, Inc. (NYSE:AI), First Financial Bankshares Inc (NASDAQ:FFIN), Old Republic International Corporation (NYSE:ORI), and Rexford Industrial Realty Inc (NYSE:REXR). This group of stocks’ market values resemble CHNG’s market value.

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As you can see these stocks had an average of 21.7 hedge funds with bullish positions and the average amount invested in these stocks was $352 million. That figure was $1845 million in CHNG’s case. Planet Fitness Inc (NYSE:PLNT) is the most popular stock in this table. On the other hand First Financial Bankshares Inc (NASDAQ:FFIN) is the least popular one with only 11 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 90. 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 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 17.2% in 2021 through June 11th and still beat the market by 3.3 percentage points. Unfortunately CHNG wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on CHNG were disappointed as the stock returned 5.8% since the end of the first quarter (through 6/11) 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 since 2019.

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