In this article we are going to use hedge fund sentiment as a tool and determine whether Molina Healthcare, Inc. (NYSE:MOH) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is MOH a good stock to buy? Molina Healthcare, Inc. (NYSE:MOH) has seen an increase in activity from the world's largest hedge funds in recent months. Molina Healthcare, Inc. (NYSE:MOH) was in 35 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 35. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 34 hedge funds in our database with MOH holdings at the end of June. Our calculations also showed that MOH isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Cliff Asness of AQR Capital Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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 website. Now let's take a look at the latest hedge fund action encompassing Molina Healthcare, Inc. (NYSE:MOH).
Do Hedge Funds Think MOH Is A Good Stock To Buy Now?
At third quarter's end, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 3% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards MOH over the last 21 quarters. With the smart money's capital changing hands, there exists an "upper tier" of key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies has the largest position in Molina Healthcare, Inc. (NYSE:MOH), worth close to $614.1 million, accounting for 0.6% of its total 13F portfolio. The second most bullish fund manager is Viking Global, led by Andreas Halvorsen, holding a $222.8 million position; 0.8% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that hold long positions consist of David Cohen and Harold Levy's Iridian Asset Management, Ken Griffin's Citadel Investment Group and Cliff Asness's AQR Capital Management. In terms of the portfolio weights assigned to each position Iron Triangle Partners allocated the biggest weight to Molina Healthcare, Inc. (NYSE:MOH), around 4.09% of its 13F portfolio. Sivik Global Healthcare is also relatively very bullish on the stock, dishing out 3.54 percent of its 13F equity portfolio to MOH.
As aggregate interest increased, key money managers were breaking ground themselves. Polar Capital, managed by Brian Ashford-Russell and Tim Woolley, assembled the most outsized position in Molina Healthcare, Inc. (NYSE:MOH). Polar Capital had $39.5 million invested in the company at the end of the quarter. Michael Rockefeller and KarláKroeker's Woodline Partners also made a $14.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Chuck Royce's Royce & Associates, Lee Ainslie's Maverick Capital, and Noam Gottesman's GLG Partners.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Molina Healthcare, Inc. (NYSE:MOH) but similarly valued. We will take a look at Citizens Financial Group Inc (NYSE:CFG), The Boston Beer Company Inc (NYSE:SAM), RPM International Inc. (NYSE:RPM), MGM Resorts International (NYSE:MGM), Avalara, Inc. (NYSE:AVLR), Avery Dennison Corporation (NYSE:AVY), and NICE Ltd (NASDAQ:NICE). This group of stocks' market caps match MOH's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CFG,36,467127,-11 SAM,36,1212955,4 RPM,26,122123,0 MGM,41,1236673,9 AVLR,46,1330456,9 AVY,16,117745,-13 NICE,26,706151,7 Average,32.4,741890,0.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.4 hedge funds with bullish positions and the average amount invested in these stocks was $742 million. That figure was $1418 million in MOH's case. Avalara, Inc. (NYSE:AVLR) is the most popular stock in this table. On the other hand Avery Dennison Corporation (NYSE:AVY) is the least popular one with only 16 bullish hedge fund positions. Molina Healthcare, Inc. (NYSE:MOH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MOH is 67.7. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and beat the market again by 16.4 percentage points. Unfortunately MOH wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MOH were disappointed as the stock returned 10.3% since the end of September (through 12/18) 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.
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Disclosure: None. This article was originally published at Insider Monkey.