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Is CHE A Good Stock To Buy According To Hedge Funds?

Debasis Saha
·6 min read

Is Chemed Corporation (NYSE:CHE) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Is CHE a good stock to buy? Chemed Corporation (NYSE:CHE) has seen an increase in activity from the world's largest hedge funds lately. Chemed Corporation (NYSE:CHE) was in 34 hedge funds' portfolios at the end of September. The all time high for this statistic is 26. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 26 hedge funds in our database with CHE positions at the end of the second quarter. Our calculations also showed that CHE isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). 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 66 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 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. Keeping this in mind let's take a glance at the fresh hedge fund action regarding Chemed Corporation (NYSE:CHE).

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

At the end of September, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 31% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CHE over the last 21 quarters. With hedgies' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Is CHE A Good Stock To Buy?
Is CHE A Good Stock To Buy?

More specifically, Renaissance Technologies was the largest shareholder of Chemed Corporation (NYSE:CHE), with a stake worth $144.5 million reported as of the end of September. Trailing Renaissance Technologies was Fisher Asset Management, which amassed a stake valued at $85.1 million. Citadel Investment Group, GLG Partners, and GAMCO Investors 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 Miura Global Management allocated the biggest weight to Chemed Corporation (NYSE:CHE), around 0.72% of its 13F portfolio. McKinley Capital Management is also relatively very bullish on the stock, dishing out 0.43 percent of its 13F equity portfolio to CHE.

As aggregate interest increased, specific money managers have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, created the most valuable position in Chemed Corporation (NYSE:CHE). Citadel Investment Group had $35.3 million invested in the company at the end of the quarter. John Overdeck and David Siegel's Two Sigma Advisors also made a $4.4 million investment in the stock during the quarter. The other funds with brand new CHE positions are Ray Dalio's Bridgewater Associates, Zach Schreiber's Point State Capital, and Parvinder Thiara's Athanor Capital.

Let's check out hedge fund activity in other stocks similar to Chemed Corporation (NYSE:CHE). We will take a look at Banco de Chile (NYSE:BCH), Amdocs Limited (NYSE:DOX), Host Hotels and Resorts Inc (NYSE:HST), Pentair plc (NYSE:PNR), New Fortress Energy LLC (NASDAQ:NFE), Exelixis, Inc. (NASDAQ:EXEL), and Alteryx, Inc. (NYSE:AYX). This group of stocks' market valuations are similar to CHE's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BCH,4,34650,1 DOX,29,390241,2 HST,21,212497,-8 PNR,34,593923,0 NFE,7,15273,2 EXEL,34,1173099,-5 AYX,41,1192864,-7 Average,24.3,516078,-2.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.3 hedge funds with bullish positions and the average amount invested in these stocks was $516 million. That figure was $417 million in CHE's case. Alteryx, Inc. (NYSE:AYX) is the most popular stock in this table. On the other hand Banco de Chile (NYSE:BCH) is the least popular one with only 4 bullish hedge fund positions. Chemed Corporation (NYSE:CHE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CHE is 80.5. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on CHE as the stock returned 12.2% since the end of Q3 (through 12/18) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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