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Did Hedge Funds Drop The Ball On Centene Corp (CNC) ?

Abigail Fisher

How do we determine whether Centene Corp (NYSE:CNC) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.

Is Centene Corp (NYSE:CNC) worth your attention right now? Investors who are in the know are taking a bearish view. The number of bullish hedge fund positions retreated by 10 recently. Our calculations also showed that CNC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). CNC was in 55 hedge funds' portfolios at the end of September. There were 65 hedge funds in our database with CNC positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_26082" align="aligncenter" width="466"] Andreas Halvorsen of Viking Global[/caption]

Andreas Halvorsen

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's view the new hedge fund action regarding Centene Corp (NYSE:CNC).

How are hedge funds trading Centene Corp (NYSE:CNC)?

At the end of the third quarter, a total of 55 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in CNC over the last 17 quarters. With hedgies' capital changing hands, there exists a select group of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

CNC_nov2019

Among these funds, Viking Global held the most valuable stake in Centene Corp (NYSE:CNC), which was worth $534.3 million at the end of the third quarter. On the second spot was Maverick Capital which amassed $313.4 million worth of shares. Southpoint Capital Advisors, Third Point, and Renaissance Technologies 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 Jet Capital Investors allocated the biggest weight to Centene Corp (NYSE:CNC), around 8.31% of its portfolio. Scoggin is also relatively very bullish on the stock, designating 6.05 percent of its 13F equity portfolio to CNC.

Seeing as Centene Corp (NYSE:CNC) has experienced a decline in interest from the aggregate hedge fund industry, it's easy to see that there exists a select few hedgies that decided to sell off their positions entirely last quarter. Intriguingly, Keith Meister's Corvex Capital said goodbye to the largest investment of the "upper crust" of funds monitored by Insider Monkey, totaling about $73.1 million in stock, and Aaron Cowen's Suvretta Capital Management was right behind this move, as the fund cut about $68.4 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 10 funds last quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Centene Corp (NYSE:CNC) but similarly valued. We will take a look at Splunk Inc (NASDAQ:SPLK), CDW Corporation (NASDAQ:CDW), CBRE Group, Inc. (NYSE:CBRE), and Western Digital Corporation (NASDAQ:WDC). All of these stocks' market caps resemble CNC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SPLK,32,168599,7 CDW,26,1168154,-3 CBRE,27,1095686,2 WDC,35,905397,10 Average,30,834459,4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 30 hedge funds with bullish positions and the average amount invested in these stocks was $834 million. That figure was $2035 million in CNC's case. Western Digital Corporation (NASDAQ:WDC) is the most popular stock in this table. On the other hand CDW Corporation (NASDAQ:CDW) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks Centene Corp (NYSE:CNC) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on CNC as the stock returned 39.8% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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