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Were Hedge Funds Right About LHC Group, Inc. (LHCG)?

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Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about LHC Group, Inc. (NASDAQ:LHCG) in this article.

Is LHC Group, Inc. (NASDAQ:LHCG) a bargain? The best stock pickers were taking a pessimistic view. The number of bullish hedge fund bets fell by 7 in recent months. LHC Group, Inc. (NASDAQ:LHCG) was in 18 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 30. Our calculations also showed that LHCG isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 25 hedge funds in our database with LHCG holdings at the end of December.

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 S&P 500 ETFs by 115 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.

Billionaire Ken Griffin's Top 10 Stocks Holdings
Billionaire Ken Griffin's Top 10 Stocks Holdings

Ken Griffin of Citadel Investment Group

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 homepage. Now let's take a gander at the latest hedge fund action surrounding LHC Group, Inc. (NASDAQ:LHCG).

Do Hedge Funds Think LHCG Is A Good Stock To Buy Now?

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -28% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LHCG over the last 23 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

Is LHCG A Good Stock To Buy?
Is LHCG A Good Stock To Buy?

Among these funds, Bayberry Capital Partners held the most valuable stake in LHC Group, Inc. (NASDAQ:LHCG), which was worth $18.1 million at the end of the fourth quarter. On the second spot was Millennium Management which amassed $16.6 million worth of shares. Integral Health Asset Management, Citadel Investment Group, and GLG Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Bayberry Capital Partners allocated the biggest weight to LHC Group, Inc. (NASDAQ:LHCG), around 5.5% of its 13F portfolio. Integral Health Asset Management is also relatively very bullish on the stock, designating 3 percent of its 13F equity portfolio to LHCG.

Since LHC Group, Inc. (NASDAQ:LHCG) has faced declining sentiment from the smart money, it's easy to see that there exists a select few hedgies that decided to sell off their full holdings by the end of the first quarter. Interestingly, Renaissance Technologies sold off the largest position of the 750 funds watched by Insider Monkey, totaling close to $7.5 million in stock, and Principal Global Investors's Columbus Circle Investors was right behind this move, as the fund dropped about $5.6 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 7 funds by the end of the first quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as LHC Group, Inc. (NASDAQ:LHCG) but similarly valued. These stocks are Chindata Group Holdings Limited (NASDAQ:CD), Pure Storage, Inc. (NYSE:PSTG), Ingredion Incorporated (NYSE:INGR), Healthcare Trust Of America Inc (NYSE:HTA), Twist Bioscience Corporation (NASDAQ:TWST), Olin Corporation (NYSE:OLN), and KT Corporation (NYSE:KT). This group of stocks' market caps match LHCG's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CD,9,127683,-3 PSTG,30,1090136,9 INGR,25,455337,1 HTA,17,119726,3 TWST,24,1115257,1 OLN,34,1170833,11 KT,12,166402,1 Average,21.6,606482,3.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.6 hedge funds with bullish positions and the average amount invested in these stocks was $606 million. That figure was $78 million in LHCG's case. Olin Corporation (NYSE:OLN) is the most popular stock in this table. On the other hand Chindata Group Holdings Limited (NASDAQ:CD) is the least popular one with only 9 bullish hedge fund positions. LHC Group, Inc. (NASDAQ:LHCG) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for LHCG is 34. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.5% in 2021 through July 23rd and beat the market by 10.1 percentage points. A small number of hedge funds were also right about betting on LHCG, though not to the same extent, as the stock returned 11.9% since the end of Q1 (through July 23rd) and outperformed the market.

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