U.S. Markets open in 2 mins

How Did WellCare Health Plans, Inc. (WCG) Compare Against Hedge Fund Darlings in 2019?

Debasis Saha

We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57% each. Hedge funds' top 3 stock picks returned 44.6% this year and beat the S&P 500 ETFs by nearly 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like WellCare Health Plans, Inc. (NYSE:WCG).

WellCare Health Plans, Inc. (NYSE:WCG) has experienced a decrease in support from the world's most elite money managers in recent months. WCG was in 41 hedge funds' portfolios at the end of September. There were 46 hedge funds in our database with WCG positions at the end of the previous quarter. Our calculations also showed that WCG 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).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_25305" align="alignnone" width="600"] John Paulson of Paulson & Co[/caption]

PAULSON & CO

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. 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 already gained 20 percent. Now we're going to view the fresh hedge fund action encompassing WellCare Health Plans, Inc. (NYSE:WCG).

Hedge fund activity in WellCare Health Plans, Inc. (NYSE:WCG)

At Q3's end, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the second quarter of 2019. By comparison, 35 hedge funds held shares or bullish call options in WCG a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

Is WCG A Good Stock To Buy?

More specifically, Magnetar Capital was the largest shareholder of WellCare Health Plans, Inc. (NYSE:WCG), with a stake worth $211.9 million reported as of the end of September. Trailing Magnetar Capital was Water Island Capital, which amassed a stake valued at $154.4 million. Paulson & Co, Alpine Associates, and Citadel Investment Group 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 White Square Capital allocated the biggest weight to WellCare Health Plans, Inc. (NYSE:WCG), around 27.54% of its 13F portfolio. Water Island Capital is also relatively very bullish on the stock, setting aside 9.6 percent of its 13F equity portfolio to WCG.

Because WellCare Health Plans, Inc. (NYSE:WCG) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there was a specific group of hedge funds who were dropping their positions entirely heading into Q4. Intriguingly, Andreas Halvorsen's Viking Global said goodbye to the biggest position of all the hedgies followed by Insider Monkey, comprising an estimated $105.9 million in stock. Shane Finemore's fund, Manikay Partners, also dumped its stock, about $42.8 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 5 funds heading into Q4.

Let's go over hedge fund activity in other stocks similar to WellCare Health Plans, Inc. (NYSE:WCG). We will take a look at Centrais Eletricas Brasileiras SA (NYSE:EBR), Ally Financial Inc (NYSE:ALLY), Icahn Enterprises LP (NASDAQ:IEP), and Slack Technologies Inc (NYSE:WORK). This group of stocks' market caps match WCG's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EBR,5,21001,-1 ALLY,51,2112182,8 IEP,5,12357565,0 WORK,27,326449,-10 Average,22,3704299,-0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $3704 million. That figure was $1792 million in WCG's case. Ally Financial Inc (NYSE:ALLY) is the most popular stock in this table. On the other hand Centrais Eletricas Brasileiras SA (NYSE:EBR) is the least popular one with only 5 bullish hedge fund positions. WellCare Health Plans, Inc. (NYSE:WCG) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on WCG, though not to the same extent, as the stock returned 39.9% during 2019 (as of 12/23) and outperformed the market as well. 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.

Related Content