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Is The Ensign Group, Inc. (ENSG) Going to Burn These Hedge Funds?

Debasis Saha

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 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 The Ensign Group, Inc. (NASDAQ:ENSG).

Is The Ensign Group, Inc. (NASDAQ:ENSG) a buy, sell, or hold? The smart money is getting more optimistic. The number of long hedge fund bets improved by 2 recently. Our calculations also showed that ENSG isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). ENSG was in 16 hedge funds' portfolios at the end of September. There were 14 hedge funds in our database with ENSG holdings 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

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.

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. 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 also rely on the best performing hedge funds' buy/sell signals. Let's review the recent hedge fund action regarding The Ensign Group, Inc. (NASDAQ:ENSG).

How are hedge funds trading The Ensign Group, Inc. (NASDAQ:ENSG)?

At Q3's end, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ENSG over the last 17 quarters. With the smart money's capital changing hands, there exists a select group of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Is ENSG A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Kamran Moghtaderi's Eversept Partners has the largest position in The Ensign Group, Inc. (NASDAQ:ENSG), worth close to $27.8 million, comprising 8.7% of its total 13F portfolio. Coming in second is Winton Capital Management, led by David Harding, holding a $23.8 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism include Brian Ashford-Russell and Tim Woolley's Polar Capital, Chuck Royce's Royce & Associates and Cliff Asness's AQR Capital Management. In terms of the portfolio weights assigned to each position Eversept Partners allocated the biggest weight to The Ensign Group, Inc. (NASDAQ:ENSG), around 8.69% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, setting aside 0.28 percent of its 13F equity portfolio to ENSG.

Now, some big names were breaking ground themselves. Marshall Wace, managed by Paul Marshall and Ian Wace, created the most valuable position in The Ensign Group, Inc. (NASDAQ:ENSG). Marshall Wace had $1.4 million invested in the company at the end of the quarter. Donald Sussman's Paloma Partners also made a $1.4 million investment in the stock during the quarter. The following funds were also among the new ENSG investors: Peter Muller's PDT Partners, Paul Tudor Jones's Tudor Investment Corp, and Parvinder Thiara's Athanor Capital.

Let's go over hedge fund activity in other stocks similar to The Ensign Group, Inc. (NASDAQ:ENSG). We will take a look at Genomic Health, Inc. (NASDAQ:GHDX), Kennametal Inc. (NYSE:KMT), Nelnet, Inc. (NYSE:NNI), and WD-40 Company (NASDAQ:WDFC). This group of stocks' market caps match ENSG's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GHDX,16,946976,-2 KMT,25,288624,5 NNI,11,86338,-2 WDFC,17,209160,2 Average,17.25,382775,0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $383 million. That figure was $119 million in ENSG's case. Kennametal Inc. (NYSE:KMT) is the most popular stock in this table. On the other hand Nelnet, Inc. (NYSE:NNI) is the least popular one with only 11 bullish hedge fund positions. The Ensign Group, Inc. (NASDAQ:ENSG) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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. Unfortunately ENSG wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ENSG investors were disappointed as the stock returned -2.1% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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

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