Legendary investors such as Jeffrey Talpins and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don't publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That's why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze LHC Group, Inc. (NASDAQ:LHCG) from the perspective of those elite funds.
Is LHC Group, Inc. (NASDAQ:LHCG) worth your attention right now? Prominent investors are taking a pessimistic view. The number of bullish hedge fund positions fell by 4 recently. Our calculations also showed that lhcg isn't among the 30 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.
We're going to take a look at the new hedge fund action regarding LHC Group, Inc. (NASDAQ:LHCG).
What have hedge funds been doing with LHC Group, Inc. (NASDAQ:LHCG)?
Heading into the second quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from the fourth quarter of 2018. By comparison, 26 hedge funds held shares or bullish call options in LHCG a year ago. With hedgies' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
Among these funds, Millennium Management held the most valuable stake in LHC Group, Inc. (NASDAQ:LHCG), which was worth $15.1 million at the end of the first quarter. On the second spot was Governors Lane which amassed $15.1 million worth of shares. Moreover, Arrowgrass Capital Partners, Weiss Asset Management, and Angelo Gordon & Co were also bullish on LHC Group, Inc. (NASDAQ:LHCG), allocating a large percentage of their portfolios to this stock.
Because LHC Group, Inc. (NASDAQ:LHCG) has experienced declining sentiment from the entirety of the hedge funds we track, it's easy to see that there is a sect of funds that decided to sell off their positions entirely heading into Q3. Intriguingly, Brian Ashford-Russell and Tim Woolley's Polar Capital dropped the biggest investment of all the hedgies monitored by Insider Monkey, totaling an estimated $19.5 million in stock. Steve Cohen's fund, Point72 Asset Management, also dumped its stock, about $7.6 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 4 funds heading into Q3.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as LHC Group, Inc. (NASDAQ:LHCG) but similarly valued. We will take a look at Echostar Corporation (NASDAQ:SATS), Sabra Health Care REIT Inc (NASDAQ:SBRA), Rexford Industrial Realty Inc (NYSE:REXR), and Coherent, Inc. (NASDAQ:COHR). All of these stocks' market caps resemble LHCG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SATS,29,410078,-5 SBRA,9,40738,-6 REXR,21,263571,3 COHR,14,201304,-3 Average,18.25,228923,-2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $229 million. That figure was $109 million in LHCG's case. Echostar Corporation (NASDAQ:SATS) is the most popular stock in this table. On the other hand Sabra Health Care REIT Inc (NASDAQ:SBRA) is the least popular one with only 9 bullish hedge fund positions. LHC Group, Inc. (NASDAQ:LHCG) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on LHCG, though not to the same extent, as the stock returned 1.6% during the same time frame and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.