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How Did Tenet Healthcare Corp (THC) Compare Against Top Hedge Fund Stocks in 2019?

Debasis Saha

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 750 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 Tenet Healthcare Corp (NYSE:THC) and compare its performance to hedge funds' consensus picks in 2019.

Is Tenet Healthcare Corp (NYSE:THC) a bargain? Investors who are in the know are getting less bullish. The number of bullish hedge fund bets shrunk by 5 lately. Our calculations also showed that THC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

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_26869" align="alignnone" width="600"] Larry Robbins of Glenview Capital[/caption]

GLENVIEW CAPITAL

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. Now we're going to analyze the new hedge fund action encompassing Tenet Healthcare Corp (NYSE:THC).

What does smart money think about Tenet Healthcare Corp (NYSE:THC)?

At the end of the third quarter, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from one quarter earlier. On the other hand, there were a total of 28 hedge funds with a bullish position in THC a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is THC A Good Stock To Buy?

More specifically, Glenview Capital was the largest shareholder of Tenet Healthcare Corp (NYSE:THC), with a stake worth $430.8 million reported as of the end of September. Trailing Glenview Capital was Cyrus Capital Partners, which amassed a stake valued at $69.7 million. Camber Capital Management, Nantahala Capital Management, and Redwood 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 Cyrus Capital Partners allocated the biggest weight to Tenet Healthcare Corp (NYSE:THC), around 9.95% of its 13F portfolio. Nut Tree Capital is also relatively very bullish on the stock, dishing out 7.46 percent of its 13F equity portfolio to THC.

Due to the fact that Tenet Healthcare Corp (NYSE:THC) has witnessed falling interest from the aggregate hedge fund industry, it's easy to see that there were a few funds who were dropping their positions entirely heading into Q4. At the top of the heap, Christopher James's Partner Fund Management said goodbye to the biggest position of the 750 funds watched by Insider Monkey, valued at close to $30.7 million in stock, and Arthur B Cohen and Joseph Healey's Healthcor Management was right behind this move, as the fund said goodbye to about $8.8 million worth. These moves are important to note, as aggregate hedge fund interest fell by 5 funds heading into Q4.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Tenet Healthcare Corp (NYSE:THC) but similarly valued. These stocks are Kinsale Capital Group, Inc. (NASDAQ:KNSL), Verra Mobility Corporation (NASDAQ:VRRM), Commscope Holding Company Inc (NASDAQ:COMM), and Sprouts Farmers Market Inc (NASDAQ:SFM). This group of stocks' market values match THC's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KNSL,11,50852,2 VRRM,15,146636,-6 COMM,23,791413,3 SFM,23,325458,1 Average,18,328590,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $329 million. That figure was $743 million in THC's case. Commscope Holding Company Inc (NASDAQ:COMM) is the most popular stock in this table. On the other hand Kinsale Capital Group, Inc. (NASDAQ:KNSL) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Tenet Healthcare Corp (NYSE:THC) is more popular among hedge funds. 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 10.1 percentage points. Hedge funds were also right about betting on THC as the stock returned 121.9% in 2019 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. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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