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The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Mednax Inc. (NYSE:MD) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.
Is Mednax Inc. (NYSE:MD) a healthy stock for your portfolio? Hedge funds were getting less optimistic. The number of bullish hedge fund positions decreased by 3 recently. Mednax Inc. (NYSE:MD) was in 23 hedge funds' portfolios at the end of June. The all time high for this statistics is 33. Our calculations also showed that MD 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 26 hedge funds in our database with MD holdings at the end of March.
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Jeffrey Smith of Starboard Value LP
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers after its stock price crashed. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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. Now let's view the fresh hedge fund action encompassing Mednax Inc. (NYSE:MD).
Hedge fund activity in Mednax Inc. (NYSE:MD)
At the end of June, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -12% from one quarter earlier. By comparison, 18 hedge funds held shares or bullish call options in MD a year ago. With hedgies' capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
Among these funds, Starboard Value LP held the most valuable stake in Mednax Inc. (NYSE:MD), which was worth $144.5 million at the end of the third quarter. On the second spot was P2 Capital Partners which amassed $70.1 million worth of shares. Healthcor Management LP, D E Shaw, and Clearline Capital 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 P2 Capital Partners allocated the biggest weight to Mednax Inc. (NYSE:MD), around 5.86% of its 13F portfolio. Starboard Value LP is also relatively very bullish on the stock, dishing out 5.15 percent of its 13F equity portfolio to MD.
Due to the fact that Mednax Inc. (NYSE:MD) has witnessed a decline in interest from the smart money, it's easy to see that there lies a certain "tier" of funds who sold off their positions entirely in the second quarter. Interestingly, Michael Castor's Sio Capital dumped the biggest position of the "upper crust" of funds followed by Insider Monkey, totaling close to $2.1 million in stock. Ryan Tolkin (CIO)'s fund, Schonfeld Strategic Advisors, also dropped its stock, about $0.9 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 3 funds in the second quarter.
Let's also examine hedge fund activity in other stocks similar to Mednax Inc. (NYSE:MD). We will take a look at WillScot Mobile Mini Holdings Corp. (NASDAQ:WSC), WSFS Financial Corporation (NASDAQ:WSFS), Belden Inc. (NYSE:BDC), Resideo Technologies, Inc. (NYSE:REZI), Beam Therapeutics Inc. (NASDAQ:BEAM), So-Young International Inc. (NASDAQ:SY), and Rush Enterprises, Inc. (NASDAQ:RUSHB). This group of stocks' market values resemble MD's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WSC,31,283379,3 WSFS,17,118488,5 BDC,19,89326,5 REZI,20,367520,-5 BEAM,10,238351,-1 SY,7,16753,1 RUSHB,4,30427,1 Average,15.4,163463,1.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.4 hedge funds with bullish positions and the average amount invested in these stocks was $163 million. That figure was $357 million in MD's case. WillScot Mobile Mini Holdings Corp. (NASDAQ:WSC) is the most popular stock in this table. On the other hand Rush Enterprises, Inc. (NASDAQ:RUSHB) is the least popular one with only 4 bullish hedge fund positions. Mednax Inc. (NYSE:MD) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MD is 58.1. 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 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately MD wasn't nearly as popular as these 10 stocks and hedge funds that were betting on MD were disappointed as the stock returned -4.8% in Q3 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.
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Disclosure: None. This article was originally published at Insider Monkey.