We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was Inovalon Holdings Inc (NASDAQ:INOV).
Is Inovalon Holdings Inc (NASDAQ:INOV) a buy right now? Prominent investors are buying. The number of long hedge fund bets rose by 5 lately. Our calculations also showed that INOV isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_26255" align="aligncenter" width="399"] Louis Navellier of Navellier & Associates[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind we're going to take a peek at the key hedge fund action regarding Inovalon Holdings Inc (NASDAQ:INOV).
How are hedge funds trading Inovalon Holdings Inc (NASDAQ:INOV)?
Heading into the first quarter of 2020, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 45% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in INOV over the last 18 quarters. With hedgies' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
More specifically, Arrowstreet Capital was the largest shareholder of Inovalon Holdings Inc (NASDAQ:INOV), with a stake worth $16.9 million reported as of the end of September. Trailing Arrowstreet Capital was Marshall Wace LLP, which amassed a stake valued at $15.2 million. Pura Vida Investments, Iron Triangle Partners, and D E Shaw 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 Pura Vida Investments allocated the biggest weight to Inovalon Holdings Inc (NASDAQ:INOV), around 3.22% of its 13F portfolio. Iron Triangle Partners is also relatively very bullish on the stock, earmarking 3.16 percent of its 13F equity portfolio to INOV.
Consequently, key money managers were leading the bulls' herd. Iron Triangle Partners, managed by Kevin Molloy, created the most valuable position in Inovalon Holdings Inc (NASDAQ:INOV). Iron Triangle Partners had $11.9 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also initiated a $2.9 million position during the quarter. The other funds with brand new INOV positions are Renaissance Technologies, Louis Navellier's Navellier & Associates, and Noam Gottesman's GLG Partners.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Inovalon Holdings Inc (NASDAQ:INOV) but similarly valued. We will take a look at Telephone & Data Systems, Inc. (NYSE:TDS), Quaker Chemical Corp (NYSE:KWR), AMN Healthcare Services Inc (NYSE:AMN), and PotlatchDeltic Corporation (NASDAQ:PCH). All of these stocks' market caps are closest to INOV's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TDS,22,269898,-7 KWR,9,156162,-10 AMN,10,51628,1 PCH,16,345548,-4 Average,14.25,205809,-5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $206 million. That figure was $82 million in INOV's case. Telephone & Data Systems, Inc. (NYSE:TDS) is the most popular stock in this table. On the other hand Quaker Chemical Corp (NYSE:KWR) is the least popular one with only 9 bullish hedge fund positions. Inovalon Holdings Inc (NASDAQ:INOV) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but still beat the market by 5.5 percentage points. Hedge funds were also right about betting on INOV, though not to the same extent, as the stock returned -19.6% during the first two and a half months of 2020 (through March 25th) and outperformed the market as well. 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.