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Hedge Funds Are Piling Into Encompass Health Corporation (EHC)

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The Insider Monkey team has completed processing the quarterly 13F filings for the June quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Encompass Health Corporation (NYSE:EHC).

Encompass Health Corporation (NYSE:EHC) investors should pay attention to an increase in hedge fund sentiment in recent months. Encompass Health Corporation (NYSE:EHC) was in 42 hedge funds' portfolios at the end of June. The all time high for this statistic was previously 36. 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 Q2 rankings).

In the eyes of most stock holders, hedge funds are viewed as underperforming, outdated investment vehicles of yesteryear. While there are over 8000 funds with their doors open today, We look at the moguls of this club, around 850 funds. These hedge fund managers have their hands on most of all hedge funds' total capital, and by paying attention to their finest stock picks, Insider Monkey has determined a few investment strategies that have historically outrun Mr. Market. Insider Monkey's flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

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At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, artificial intelligence is one of the fastest-growing industries right now, so we are checking out stock pitches like this emerging AI stock. We go through lists like the 10 best EV 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. With all of this in mind let's view the recent hedge fund action surrounding Encompass Health Corporation (NYSE:EHC).

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

At second quarter's end, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from the previous quarter. On the other hand, there were a total of 33 hedge funds with a bullish position in EHC a year ago. With hedgies' sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

Is EHC A Good Stock To Buy?
Is EHC A Good Stock To Buy?

The largest stake in Encompass Health Corporation (NYSE:EHC) was held by JANA Partners, which reported holding $158.3 million worth of stock at the end of June. It was followed by Citadel Investment Group with a $92.5 million position. Other investors bullish on the company included Healthcor Management LP, Polar Capital, and Point72 Asset Management. In terms of the portfolio weights assigned to each position JANA Partners allocated the biggest weight to Encompass Health Corporation (NYSE:EHC), around 13.06% of its 13F portfolio. Iron Triangle Partners is also relatively very bullish on the stock, setting aside 4.53 percent of its 13F equity portfolio to EHC.

Consequently, some big names have jumped into Encompass Health Corporation (NYSE:EHC) headfirst. Jet Capital Investors, managed by Matthew Mark, initiated the most valuable call position in Encompass Health Corporation (NYSE:EHC). Jet Capital Investors had $15.6 million invested in the company at the end of the quarter. Andrew Rechtschaffen's AREX Capital Management also initiated a $4.5 million position during the quarter. The other funds with new positions in the stock are Michael Gelband's ExodusPoint Capital, Greg Poole's Echo Street Capital Management, and Gavin Saitowitz and Cisco J. del Valle's Prelude Capital (previously Springbok Capital).

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Encompass Health Corporation (NYSE:EHC) but similarly valued. These stocks are Brunswick Corporation (NYSE:BC), AngloGold Ashanti Limited (NYSE:AU), Reinsurance Group of America Inc (NYSE:RGA), Skechers USA Inc (NYSE:SKX), Tempur Sealy International Inc. (NYSE:TPX), Anaplan, Inc. (NYSE:PLAN), and PVH Corp (NYSE:PVH). This group of stocks' market valuations are closest to EHC's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BC,38,1095771,-4 AU,12,372898,-2 RGA,28,414971,1 SKX,35,772836,6 TPX,35,1096506,-2 PLAN,52,2141802,-3 PVH,28,1759709,-6 Average,32.6,1093499,-1.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.6 hedge funds with bullish positions and the average amount invested in these stocks was $1093 million. That figure was $865 million in EHC's case. Anaplan, Inc. (NYSE:PLAN) is the most popular stock in this table. On the other hand AngloGold Ashanti Limited (NYSE:AU) is the least popular one with only 12 bullish hedge fund positions. Encompass Health Corporation (NYSE:EHC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for EHC is 77.5. 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. 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 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 22.9% in 2021 through October 1st and beat the market again by 5.6 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 -5% since the end of June (through 10/1) 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 many of these stocks already outperformed the market since 2019.

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