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Hedge Funds Aren’t Done Buying Encompass Health Corporation (EHC)

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Is Encompass Health Corporation (NYSE:EHC) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Encompass Health Corporation (NYSE:EHC) investors should pay attention to an increase in support from the world's most elite money managers lately. Encompass Health Corporation (NYSE:EHC) was in 36 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic was 35. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that EHC isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

To most investors, hedge funds are seen as worthless, old financial vehicles of years past. While there are greater than 8000 funds with their doors open at present, Our researchers look at the leaders of this club, about 850 funds. These hedge fund managers shepherd the lion's share of the smart money's total capital, and by keeping track of their finest stock picks, Insider Monkey has revealed various investment strategies that have historically outperformed the market. Insider Monkey's flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

Barry Rosenstein JANA PARTNERS
Barry Rosenstein JANA PARTNERS

Barry Rosenstein of JANA Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we're going to view the key hedge fund action surrounding Encompass Health Corporation (NYSE:EHC).

Do Hedge Funds Think EHC Is A Good Stock To Buy Now?

At the end of the first quarter, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in EHC over the last 23 quarters. With hedge funds' capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, JANA Partners, managed by Barry Rosenstein, holds the biggest position in Encompass Health Corporation (NYSE:EHC). JANA Partners has a $139.5 million position in the stock, comprising 9.4% of its 13F portfolio. The second most bullish fund manager is Millennium Management, managed by Israel Englander, which holds a $136.5 million position; 0.1% of its 13F portfolio is allocated to the stock. Some other peers that are bullish encompass Ken Griffin's Citadel Investment Group, Arthur B Cohen and Joseph Healey's Healthcor Management LP and Brian Ashford-Russell and Tim Woolley's Polar Capital. In terms of the portfolio weights assigned to each position JANA Partners allocated the biggest weight to Encompass Health Corporation (NYSE:EHC), around 9.41% of its 13F portfolio. Iron Triangle Partners is also relatively very bullish on the stock, setting aside 8.07 percent of its 13F equity portfolio to EHC.

As aggregate interest increased, specific money managers have been driving this bullishness. Healthcor Management LP, managed by Arthur B Cohen and Joseph Healey, initiated the biggest position in Encompass Health Corporation (NYSE:EHC). Healthcor Management LP had $82.3 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also initiated a $17.5 million position during the quarter. The other funds with brand new EHC positions are Philip Hempleman's Ardsley Partners, Dmitry Balyasny's Balyasny Asset Management, and Paul Tudor Jones's Tudor Investment Corp.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Encompass Health Corporation (NYSE:EHC) but similarly valued. These stocks are Kimco Realty Corp (NYSE:KIM), Oshkosh Corporation (NYSE:OSK), Autoliv Inc. (NYSE:ALV), New Fortress Energy Inc. (NASDAQ:NFE), CAE, Inc. (NYSE:CAE), Pearson PLC (NYSE:PSO), and Genpact Limited (NYSE:G). This group of stocks' market valuations resemble EHC's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KIM,17,90007,-5 OSK,26,416413,-14 ALV,20,813218,-6 NFE,12,30553,1 CAE,17,113000,7 PSO,6,19900,1 G,23,271528,-8 Average,17.3,250660,-3.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.3 hedge funds with bullish positions and the average amount invested in these stocks was $251 million. That figure was $836 million in EHC's case. Oshkosh Corporation (NYSE:OSK) is the most popular stock in this table. On the other hand Pearson PLC (NYSE:PSO) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Encompass Health Corporation (NYSE:EHC) is more popular among hedge funds. Our overall hedge fund sentiment score for EHC is 86. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 19.3% in 2021 through June 25th and still beat the market by 4.8 percentage points. Unfortunately EHC wasn't nearly as popular as these 5 stocks and hedge funds that were betting on EHC were disappointed as the stock returned -1% since the end of the first quarter (through 6/25) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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