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While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Tenet Healthcare Corp (NYSE:THC).
Is THC a good stock to buy? Tenet Healthcare Corp (NYSE:THC) has seen an increase in hedge fund interest of late. Tenet Healthcare Corp (NYSE:THC) was in 33 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 44. There were 28 hedge funds in our database with THC positions at the end of the second quarter. Our calculations also showed that THC 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.
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 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 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 stocks that are in our short portfolio.
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. Keeping this in mind let's analyze the key hedge fund action regarding Tenet Healthcare Corp (NYSE:THC).
Do Hedge Funds Think THC Is A Good Stock To Buy Now?
At the end of September, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from one quarter earlier. On the other hand, there were a total of 26 hedge funds with a bullish position in THC a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Larry Robbins's Glenview Capital has the number one position in Tenet Healthcare Corp (NYSE:THC), worth close to $484.4 million, comprising 15.2% of its total 13F portfolio. The second most bullish fund manager is Nantahala Capital Management, led by Wilmot B. Harkey and Daniel Mack, holding a $58.9 million call position; 1.8% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that are bullish consist of Jared Nussbaum's Nut Tree Capital, Arthur B Cohen and Joseph Healey's Healthcor Management LP and Jonathan Kolatch's Redwood Capital Management. In terms of the portfolio weights assigned to each position Glenview Capital allocated the biggest weight to Tenet Healthcare Corp (NYSE:THC), around 15.2% of its 13F portfolio. Nut Tree Capital is also relatively very bullish on the stock, setting aside 12.27 percent of its 13F equity portfolio to THC.
Consequently, key hedge funds were leading the bulls' herd. Camber Capital Management, managed by Stephen DuBois, initiated the most valuable position in Tenet Healthcare Corp (NYSE:THC). Camber Capital Management had $24.5 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also made a $23.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Greg Eisner's Engineers Gate Manager, Jinghua Yan's TwinBeech Capital, and Zach Schreiber's Point State Capital.
Let's check out hedge fund activity in other stocks similar to Tenet Healthcare Corp (NYSE:THC). These stocks are ShockWave Medical, Inc. (NASDAQ:SWAV), Nu Skin Enterprises, Inc. (NYSE:NUS), Tegna Inc (NYSE:TGNA), Pacira Biosciences Inc (NASDAQ:PCRX), Cleveland-Cliffs Inc (NYSE:CLF), Antero Midstream Corp (NYSE:AM), and BlackBerry Limited (NYSE:BB). All of these stocks' market caps are closest to THC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SWAV,16,135654,4 NUS,22,315274,-3 TGNA,27,285889,-2 PCRX,25,519535,-4 CLF,22,314755,-3 AM,19,137564,5 BB,24,320931,2 Average,22.1,289943,-0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.1 hedge funds with bullish positions and the average amount invested in these stocks was $290 million. That figure was $792 million in THC's case. Tegna Inc (NYSE:TGNA) is the most popular stock in this table. On the other hand ShockWave Medical, Inc. (NASDAQ:SWAV) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Tenet Healthcare Corp (NYSE:THC) is more popular among hedge funds. Our overall hedge fund sentiment score for THC is 82.5. 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. 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 returned 33.3% in 2020 through December 18th but still managed to beat the market by 16.4 percentage points. Hedge funds were also right about betting on THC as the stock returned 64.3% since the end of September (through 12/18) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.