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Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Sabra Health Care REIT Inc (NASDAQ:SBRA).
Is Sabra Health Care REIT Inc (NASDAQ:SBRA) a buy here? Money managers are in a bullish mood. The number of long hedge fund positions advanced by 15 recently. Our calculations also showed that SBRA 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). SBRA was in 27 hedge funds' portfolios at the end of December. There were 12 hedge funds in our database with SBRA holdings at the end of the previous quarter.
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 monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 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.
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Ken Griffin of Citadel Investment Group[/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. With all of this in mind let's take a gander at the fresh hedge fund action encompassing Sabra Health Care REIT Inc (NASDAQ:SBRA).
How have hedgies been trading Sabra Health Care REIT Inc (NASDAQ:SBRA)?
Heading into the first quarter of 2020, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 125% from the previous quarter. By comparison, 15 hedge funds held shares or bullish call options in SBRA a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Long Pond Capital held the most valuable stake in Sabra Health Care REIT Inc (NASDAQ:SBRA), which was worth $186.3 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $25.2 million worth of shares. Renaissance Technologies, Millennium Management, and Balyasny Asset 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 Long Pond Capital allocated the biggest weight to Sabra Health Care REIT Inc (NASDAQ:SBRA), around 4.76% of its 13F portfolio. Forward Management is also relatively very bullish on the stock, setting aside 1.71 percent of its 13F equity portfolio to SBRA.
Consequently, some big names have jumped into Sabra Health Care REIT Inc (NASDAQ:SBRA) headfirst. Renaissance Technologies created the most valuable position in Sabra Health Care REIT Inc (NASDAQ:SBRA). Renaissance Technologies had $20.1 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also initiated a $15.4 million position during the quarter. The other funds with new positions in the stock are John Overdeck and David Siegel's Two Sigma Advisors, Paul Marshall and Ian Wace's Marshall Wace LLP, and Parvinder Thiara's Athanor Capital.
Let's also examine hedge fund activity in other stocks similar to Sabra Health Care REIT Inc (NASDAQ:SBRA). These stocks are Philippine Long Distance Telephone (NYSE:PHI), Ternium S.A. (NYSE:TX), New Jersey Resources Corp (NYSE:NJR), and Colfax Corporation (NYSE:CFX). This group of stocks' market valuations resemble SBRA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PHI,7,75067,2 TX,11,124170,1 NJR,20,118866,4 CFX,43,904378,12 Average,20.25,305620,4.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $306 million. That figure was $307 million in SBRA's case. Colfax Corporation (NYSE:CFX) is the most popular stock in this table. On the other hand Philippine Long Distance Telephone (NYSE:PHI) is the least popular one with only 7 bullish hedge fund positions. Sabra Health Care REIT Inc (NASDAQ:SBRA) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 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 beat the market by 5.5 percentage points. Unfortunately SBRA wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SBRA were disappointed as the stock returned -47.5% during the same time period 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 many of these stocks already outperformed the market so far this year.
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.