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Is The Providence Service Corporation (PRSC) A Good Stock To Buy?

Abigail Fisher

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged during the first quarter. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 40% and 25% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the first 5 months of 2019 and outperformed the broader market benchmark by 6.6 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Is The Providence Service Corporation (NASDAQ:PRSC) worth your attention right now? Money managers are getting less bullish. The number of bullish hedge fund bets fell by 2 in recent months. Our calculations also showed that PRSC isn't among the 30 most popular stocks among hedge funds.

To most traders, hedge funds are perceived as unimportant, outdated financial tools of yesteryear. While there are more than 8000 funds trading at the moment, Our researchers hone in on the leaders of this club, about 750 funds. It is estimated that this group of investors orchestrate the lion's share of all hedge funds' total capital, and by tailing their top investments, Insider Monkey has revealed numerous investment strategies that have historically exceeded the market. Insider Monkey's flagship hedge fund strategy exceeded the S&P 500 index by around 5 percentage points annually since its inception in May 2014 through June 18th. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 28.2% since February 2017 (through June 18th) even though the market was up nearly 30% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 8.2% in a month whereas our long picks outperformed the market by 2.5 percentage points in this volatile 5 week period (our long picks also beat the market by 15 percentage points so far this year).

[caption id="attachment_30621" align="aligncenter" width="487"] Cliff Asness of AQR Capital Management[/caption]

AQR CAPITAL MANAGEMENT

We're going to take a gander at the latest hedge fund action surrounding The Providence Service Corporation (NASDAQ:PRSC).

What does smart money think about The Providence Service Corporation (NASDAQ:PRSC)?

Heading into the second quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PRSC over the last 15 quarters. With the smart money's capital changing hands, there exists a select group of key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

PRSC_june2019

Of the funds tracked by Insider Monkey, Coliseum Capital, managed by Christopher Shackelton and Adam Gray, holds the largest position in The Providence Service Corporation (NASDAQ:PRSC). Coliseum Capital has a $81.6 million position in the stock, comprising 29.5% of its 13F portfolio. The second most bullish fund manager is Renaissance Technologies, managed by Jim Simons, which holds a $63.4 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism include Jeremy Carton and Gilbert Li's Alta Fundamental Advisers, Amy Minella's Cardinal Capital and Cliff Asness's AQR Capital Management.

Since The Providence Service Corporation (NASDAQ:PRSC) has experienced bearish sentiment from the entirety of the hedge funds we track, we can see that there were a few funds who sold off their full holdings heading into Q3. It's worth mentioning that Paul Marshall and Ian Wace's Marshall Wace LLP sold off the biggest stake of the 700 funds monitored by Insider Monkey, worth about $0.4 million in stock, and David Costen Haley's HBK Investments was right behind this move, as the fund dumped about $0.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 2 funds heading into Q3.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as The Providence Service Corporation (NASDAQ:PRSC) but similarly valued. We will take a look at Cerus Corporation (NASDAQ:CERS), Global Cord Blood Corp (NYSE:CO), Carbonite Inc (NASDAQ:CARB), and Nightstar Therapeutics plc (NASDAQ:NITE). This group of stocks' market values are similar to PRSC's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CERS,17,108108,2 CO,8,32681,1 CARB,20,145949,4 NITE,14,119090,6 Average,14.75,101457,3.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $101 million. That figure was $181 million in PRSC's case. Carbonite Inc (NASDAQ:CARB) is the most popular stock in this table. On the other hand Global Cord Blood Corp (NYSE:CO) is the least popular one with only 8 bullish hedge fund positions. The Providence Service Corporation (NASDAQ:PRSC) 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 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately PRSC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PRSC investors were disappointed as the stock returned -3.9% during the same time period 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 13 of these stocks already outperformed the market so far in Q2.

Disclosure: None. This article was originally published at Insider Monkey.

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