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These Hedge Funds Cashed Out Of Molina Healthcare, Inc. (MOH) Too Early

Nina Todic

Does Molina Healthcare, Inc. (NYSE:MOH) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.

Molina Healthcare, Inc. (NYSE:MOH) has experienced a decrease in activity from the world's largest hedge funds of late. Our calculations also showed that MOH isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

[caption id="attachment_26082" align="aligncenter" width="466"] Andreas Halvorsen of Viking Global[/caption]

Andreas Halvorsen

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's go over the key hedge fund action regarding Molina Healthcare, Inc. (NYSE:MOH).

What have hedge funds been doing with Molina Healthcare, Inc. (NYSE:MOH)?

At Q3's end, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -22% from the previous quarter. By comparison, 30 hedge funds held shares or bullish call options in MOH a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with MOH Positions

More specifically, Renaissance Technologies was the largest shareholder of Molina Healthcare, Inc. (NYSE:MOH), with a stake worth $466.2 million reported as of the end of September. Trailing Renaissance Technologies was Viking Global, which amassed a stake valued at $161.3 million. Iridian Asset Management, AQR Capital Management, and Partner Fund 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 Tavio Capital allocated the biggest weight to Molina Healthcare, Inc. (NYSE:MOH), around 12.87% of its portfolio. Iridian Asset Management is also relatively very bullish on the stock, dishing out 2.04 percent of its 13F equity portfolio to MOH.

Judging by the fact that Molina Healthcare, Inc. (NYSE:MOH) has witnessed declining sentiment from the smart money, logic holds that there is a sect of money managers who sold off their full holdings heading into Q4. It's worth mentioning that Ken Griffin's Citadel Investment Group cut the biggest position of all the hedgies monitored by Insider Monkey, valued at about $17.4 million in call options, and Israel Englander's Millennium Management was right behind this move, as the fund cut about $17.2 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 7 funds heading into Q4.

Let's now review hedge fund activity in other stocks similar to Molina Healthcare, Inc. (NYSE:MOH). These stocks are Owens Corning (NYSE:OC), WABCO Holdings Inc. (NYSE:WBC), Starwood Property Trust, Inc. (NYSE:STWD), and Algonquin Power & Utilities Corp. (NYSE:AQN). This group of stocks' market caps are closest to MOH's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OC,40,1305624,6 WBC,29,1218154,-4 STWD,18,158291,4 AQN,15,211065,6 Average,25.5,723284,3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $723 million. That figure was $1040 million in MOH's case. Owens Corning (NYSE:OC) is the most popular stock in this table. On the other hand Algonquin Power & Utilities Corp. (NYSE:AQN) is the least popular one with only 15 bullish hedge fund positions. Molina Healthcare, Inc. (NYSE:MOH) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on MOH as the stock returned 23.5% during the first two months of Q4 and outperformed the market by an even larger margin.

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

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