"October lived up to its scary reputation—the S&P 500 falling in the month by the largest amount in the last 40 years, the only worse Octobers being '08 and the Crash of '87. For perspective, there have been only 5 occasions in those 40 years when the S&P 500 declined by greater than 20% from peak to trough. Other than the '87 Crash, all were during recessions. There were 17 other instances, over the same time frame, when the market fell by over 10% but less than 20%. Furthermore, this is the 18th correction of 5% or more since the current bull market started in March '09. Corrections are the norm. They can be healthy as they often undo market complacency—overbought levels—potentially allowing the market to base and move even higher." This is how Trapeze Asset Management summarized the recent market moves in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.
Mednax Inc. (NYSE:MD) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 25 hedge funds' portfolios at the end of December. At the end of this article we will also compare MD to other stocks including Hancock Whitney Corporation (NASDAQ:HWC), LHC Group, Inc. (NASDAQ:LHCG), and Valley National Bancorp (NASDAQ:VLY) to get a better sense of its popularity.
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 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 32 percentage points since May 2014 through March 12, 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.
We're going to check out the latest hedge fund action surrounding Mednax Inc. (NYSE:MD).
How have hedgies been trading Mednax Inc. (NYSE:MD)?
At Q4's end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2018. On the other hand, there were a total of 25 hedge funds with a bullish position in MD a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
The largest stake in Mednax Inc. (NYSE:MD) was held by Blue Harbour Group, which reported holding $151.9 million worth of stock at the end of September. It was followed by Pzena Investment Management with a $110.4 million position. Other investors bullish on the company included Elliott Management, D E Shaw, and P2 Capital Partners.
Because Mednax Inc. (NYSE:MD) has faced bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there was a specific group of money managers that decided to sell off their positions entirely by the end of the third quarter. It's worth mentioning that Samuel Isaly's OrbiMed Advisors said goodbye to the biggest position of the "upper crust" of funds tracked by Insider Monkey, totaling about $68.6 million in stock. Steve Cohen's fund, Point72 Asset Management, also dropped its stock, about $21.5 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks similar to Mednax Inc. (NYSE:MD). We will take a look at Hancock Whitney Corporation (NASDAQ:HWC), LHC Group, Inc. (NASDAQ:LHCG), Valley National Bancorp (NASDAQ:VLY), and Qualys Inc (NASDAQ:QLYS). This group of stocks' market valuations resemble MD's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HWC,15,111721,-9 LHCG,27,111944,2 VLY,8,14064,0 QLYS,17,180037,-1 Average,16.75,104442,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $104 million. That figure was $481 million in MD's case. LHC Group, Inc. (NASDAQ:LHCG) is the most popular stock in this table. On the other hand Valley National Bancorp (NASDAQ:VLY) is the least popular one with only 8 bullish hedge fund positions. Mednax Inc. (NYSE:MD) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately MD wasn't nearly as popular as these 15 stock and hedge funds that were betting on MD were disappointed as the stock returned -22.5% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.