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 Centene Corp (NYSE:CNC) and compare its performance to hedge funds' consensus picks in 2019.
Centene Corp (NYSE:CNC) investors should be aware of a decrease in support from the world's most elite money managers of late. 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 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' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
[caption id="attachment_26082" align="alignnone" width="600"] Andreas Halvorsen of Viking Global[/caption]
We leave no stone unturned when looking for the next great investment idea. For example 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. 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. Keeping this in mind let's go over the fresh hedge fund action regarding Centene Corp (NYSE:CNC).
How are hedge funds trading Centene Corp (NYSE:CNC)?
At Q3's end, a total of 55 of the hedge funds tracked by Insider Monkey were long this stock, a change of -15% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CNC over the last 17 quarters. With hedgies' capital changing hands, there exists a few notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
The largest stake in Centene Corp (NYSE:CNC) was held by Viking Global, which reported holding $534.3 million worth of stock at the end of September. It was followed by Maverick Capital with a $313.4 million position. Other investors bullish on the company included Southpoint Capital Advisors, Third Point, and Renaissance Technologies. 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 13F portfolio. Scoggin is also relatively very bullish on the stock, designating 6.05 percent of its 13F equity portfolio to CNC.
Since Centene Corp (NYSE:CNC) has faced falling interest from the smart money, it's easy to see that there lies a certain "tier" of hedge funds that slashed their entire stakes heading into Q4. At the top of the heap, Keith Meister's Corvex Capital said goodbye to the largest investment of the 750 funds tracked by Insider Monkey, worth about $73.1 million in stock. Aaron Cowen's fund, Suvretta Capital Management, also sold off its stock, about $68.4 million worth. These moves are important to note, as total hedge fund interest was cut by 10 funds heading into Q4.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Centene Corp (NYSE:CNC) but similarly valued. These stocks are Splunk Inc (NASDAQ:SPLK), CDW Corporation (NASDAQ:CDW), CBRE Group, Inc. (NYSE:CBRE), and Western Digital Corporation (NASDAQ:WDC). This group of stocks' market caps are similar to 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 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately CNC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CNC were disappointed as the stock returned 9.1% so far in 2019 (through 12/23) and trailed 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 65 percent of these stocks already outperformed the market in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.