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Hedge Funds Are Piling Into Encompass Health Corporation (EHC)

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  • EHC

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to the smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Encompass Health Corporation (NYSE:EHC)? The smart money sentiment can provide an answer to this question.

Encompass Health Corporation (NYSE:EHC) has experienced an increase in enthusiasm from smart money lately. Encompass Health Corporation (NYSE:EHC) was in 44 hedge funds' portfolios at the end of the third quarter of 2021. The all time high for this statistic was previously 42. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 42 hedge funds in our database with EHC positions at the end of the second quarter. Our calculations also showed that EHC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings).

Barry Rosenstein - Jana Partners
Barry Rosenstein - Jana Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. Now 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 the end of the third quarter, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the second quarter of 2021. Below, you can check out the change in hedge fund sentiment towards EHC over the last 25 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

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

More specifically, JANA Partners was the largest shareholder of Encompass Health Corporation (NYSE:EHC), with a stake worth $150.2 million reported as of the end of September. Trailing JANA Partners was Polar Capital, which amassed a stake valued at $74.4 million. Point72 Asset Management, Jet Capital Investors, 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 JANA Partners allocated the biggest weight to Encompass Health Corporation (NYSE:EHC), around 12.02% of its 13F portfolio. Jet Capital Investors is also relatively very bullish on the stock, earmarking 10.95 percent of its 13F equity portfolio to EHC.

As one would reasonably expect, key money managers have jumped into Encompass Health Corporation (NYSE:EHC) headfirst. Canyon Capital Advisors, managed by Joshua Friedman and Mitchell Julis, created the most valuable position in Encompass Health Corporation (NYSE:EHC). Canyon Capital Advisors had $47.6 million invested in the company at the end of the quarter. Larry Robbins's Glenview Capital also initiated a $30.1 million position during the quarter. The other funds with new positions in the stock are Benjamin Natter's Kent Lake Capital, Renaissance Technologies, and Matthew Mark's Jet Capital Investors.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Encompass Health Corporation (NYSE:EHC) but similarly valued. We will take a look at Stevanato Group S.p.A. (NYSE:STVN), Sotera Health Company (NASDAQ:SHC), ITT Inc. (NYSE:ITT), Sarepta Therapeutics Inc (NASDAQ:SRPT), Brunswick Corporation (NYSE:BC), First American Financial Corp (NYSE:FAF), and Capri Holdings Limited (NYSE:CPRI). This group of stocks' market values are closest to EHC's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position STVN,16,142293,16 SHC,20,396497,2 ITT,20,195476,0 SRPT,28,836968,-6 BC,39,1090033,1 FAF,29,1505467,-2 CPRI,46,833450,2 Average,28.3,714312,1.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.3 hedge funds with bullish positions and the average amount invested in these stocks was $714 million. That figure was $708 million in EHC's case. Capri Holdings Limited (NYSE:CPRI) is the most popular stock in this table. On the other hand Stevanato Group S.p.A. (NYSE:STVN) is the least popular one with only 16 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 83.7. 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 28.6% in 2021 through November 30th 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 -23.2% since the end of September (through 11/30) 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.