National HealthCare Corporation (NHC): Hedge Funds In Wait-and-See Mode
The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtNational HealthCare Corporation (NYSE:NHC) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.
National HealthCare Corporation (NYSE:NHC) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 11 hedge funds' portfolios at the end of March. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Kontoor Brands, Inc. (NASDAQ:KTB), Banco Macro SA (NYSE:BMA), and Deluxe Corporation (NYSE:DLX) to gather more data points. Our calculations also showed that NHC isn't among the 30 most popular stocks among hedge funds (click for Q1 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_189632" align="aligncenter" width="400"]
David Harding of Winton Capital Management[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we're going to check out the fresh hedge fund action surrounding National HealthCare Corporation (NYSE:NHC).
How have hedgies been trading National HealthCare Corporation (NYSE:NHC)?
At the end of the first quarter, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in NHC over the last 18 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in National HealthCare Corporation (NYSE:NHC) was held by Renaissance Technologies, which reported holding $47.8 million worth of stock at the end of September. It was followed by Winton Capital Management with a $2.4 million position. Other investors bullish on the company included AQR Capital Management, Two Sigma Advisors, and PEAK6 Capital Management. In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to National HealthCare Corporation (NYSE:NHC), around 0.61% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, earmarking 0.06 percent of its 13F equity portfolio to NHC.
Judging by the fact that National HealthCare Corporation (NYSE:NHC) has experienced declining sentiment from the entirety of the hedge funds we track, it's easy to see that there lies a certain "tier" of fund managers that decided to sell off their full holdings by the end of the first quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital said goodbye to the largest position of the 750 funds followed by Insider Monkey, comprising an estimated $1.3 million in stock. Ryan Tolkin (CIO)'s fund, Schonfeld Strategic Advisors, also dropped its stock, about $0.3 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as National HealthCare Corporation (NYSE:NHC) but similarly valued. These stocks are Kontoor Brands, Inc. (NASDAQ:KTB), Banco Macro SA (NYSE:BMA), Deluxe Corporation (NYSE:DLX), and BancFirst Corporation (NASDAQ:BANF). All of these stocks' market caps are closest to NHC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KTB,16,33264,2 BMA,8,55211,1 DLX,15,63014,-14 BANF,12,29557,6 Average,12.75,45262,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $45 million. That figure was $56 million in NHC's case. Kontoor Brands, Inc. (NASDAQ:KTB) is the most popular stock in this table. On the other hand Banco Macro SA (NYSE:BMA) is the least popular one with only 8 bullish hedge fund positions. National HealthCare Corporation (NYSE:NHC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately NHC wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); NHC investors were disappointed as the stock returned -10.8% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
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