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While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Community Health Systems (NYSE:CYH).
Is CYH a good stock to buy now? Community Health Systems (NYSE:CYH) shareholders have witnessed an increase in enthusiasm from smart money in recent months. Community Health Systems (NYSE:CYH) was in 22 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 59. Our calculations also showed that CYH 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.
Donald Sussman of Paloma Partners
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. We go through lists like the 15 best blue chip stocks 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. With all of this in mind let's check out the new hedge fund action encompassing Community Health Systems (NYSE:CYH).
Do Hedge Funds Think CYH Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 22% from one quarter earlier. On the other hand, there were a total of 19 hedge funds with a bullish position in CYH a year ago. With hedgies' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
Among these funds, Shanda Asset Management held the most valuable stake in Community Health Systems (NYSE:CYH), which was worth $116 million at the end of the third quarter. On the second spot was Elliott Investment Management which amassed $19 million worth of shares. Royce & Associates, Centerbridge Partners, and D E Shaw 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 Shanda Asset Management allocated the biggest weight to Community Health Systems (NYSE:CYH), around 7.94% of its 13F portfolio. Centerbridge Partners is also relatively very bullish on the stock, earmarking 1.05 percent of its 13F equity portfolio to CYH.
As industrywide interest jumped, key money managers have been driving this bullishness. Quantinno Capital, managed by Hoon Kim, established the most outsized position in Community Health Systems (NYSE:CYH). Quantinno Capital had $0.6 million invested in the company at the end of the quarter. Greg Eisner's Engineers Gate Manager also made a $0.3 million investment in the stock during the quarter. The other funds with brand new CYH positions are Jonathan Soros's JS Capital, Donald Sussman's Paloma Partners, and Paul Tudor Jones's Tudor Investment Corp.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Community Health Systems (NYSE:CYH) but similarly valued. These stocks are IVERIC bio, Inc. (NASDAQ:ISEE), Brigham Minerals, Inc. (NYSE:MNRL), TrustCo Bank Corp NY (NASDAQ:TRST), Atreca, Inc. (NASDAQ:BCEL), Community Trust Bancorp, Inc. (NASDAQ:CTBI), ScanSource, Inc. (NASDAQ:SCSC), and Anika Therapeutics, Inc. (NASDAQ:ANIK). This group of stocks' market valuations resemble CYH's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ISEE,26,278032,-5 MNRL,19,75169,3 TRST,14,16105,1 BCEL,12,162774,3 CTBI,10,15317,2 SCSC,10,43718,-3 ANIK,15,52564,2 Average,15.1,91954,0.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.1 hedge funds with bullish positions and the average amount invested in these stocks was $92 million. That figure was $194 million in CYH's case. IVERIC bio, Inc. (NASDAQ:ISEE) is the most popular stock in this table. On the other hand Community Trust Bancorp, Inc. (NASDAQ:CTBI) is the least popular one with only 10 bullish hedge fund positions. Community Health Systems (NYSE:CYH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CYH is 57.7. 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. 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 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on CYH as the stock returned 91.7% since the end of Q3 (through 12/14) 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.