Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 900 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Centene Corporation (NYSE:CNC), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Is CNC a good stock to buy? Centene Corporation (NYSE:CNC) has experienced a decrease in hedge fund interest lately. Centene Corporation (NYSE:CNC) was in 49 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 71. There were 53 hedge funds in our database with CNC positions at the end of the first quarter. Our calculations also showed that CNC isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
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 79 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.
Ricky Sandler of Eminence Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 we’re going to check out the fresh hedge fund action regarding Centene Corporation (NYSE:CNC).
Do Hedge Funds Think CNC Is A Good Stock To Buy Now?
At Q2’s end, a total of 49 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from one quarter earlier. On the other hand, there were a total of 71 hedge funds with a bullish position in CNC a year ago. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
The largest stake in Centene Corporation (NYSE:CNC) was held by Viking Global, which reported holding $816.8 million worth of stock at the end of June. It was followed by Farallon Capital with a $346.4 million position. Other investors bullish on the company included Southpoint Capital Advisors, Maverick Capital, and Lyrical Asset Management. In terms of the portfolio weights assigned to each position Southpoint Capital Advisors allocated the biggest weight to Centene Corporation (NYSE:CNC), around 4.42% of its 13F portfolio. Bridger Management is also relatively very bullish on the stock, dishing out 4.29 percent of its 13F equity portfolio to CNC.
Due to the fact that Centene Corporation (NYSE:CNC) has experienced declining sentiment from hedge fund managers, it’s easy to see that there were a few hedgies that elected to cut their positions entirely by the end of the second quarter. It’s worth mentioning that Steve Cohen’s Point72 Asset Management said goodbye to the largest position of the 750 funds watched by Insider Monkey, comprising about $86.9 million in stock, and Alec Litowitz and Ross Laser’s Magnetar Capital was right behind this move, as the fund dropped about $17.7 million worth. These moves are interesting, as total hedge fund interest fell by 4 funds by the end of the second quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Centene Corporation (NYSE:CNC) but similarly valued. These stocks are Digital Realty Trust, Inc. (NYSE:DLR), American Electric Power Company, Inc. (NASDAQ:AEP), Carrier Global Corporation (NYSE:CARR), Synopsys, Inc. (NASDAQ:SNPS), Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC), Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA), and DexCom, Inc. (NASDAQ:DXCM). This group of stocks’ market caps resemble CNC’s market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DLR,30,424723,8 AEP,29,726241,-3 CARR,46,1853633,-5 SNPS,41,2057258,7 ERIC,19,228837,0 BBVA,9,274525,2 DXCM,49,1634192,-7 Average,31.9,1028487,0.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.9 hedge funds with bullish positions and the average amount invested in these stocks was $1028 million. That figure was $3240 million in CNC’s case. DexCom, Inc. (NASDAQ:DXCM) is the most popular stock in this table. On the other hand Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA) is the least popular one with only 9 bullish hedge fund positions. Centene Corporation (NYSE:CNC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CNC is 71.7. 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 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 22.9% in 2021 through October 1st and beat the market again by 5.6 percentage points. Unfortunately CNC wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on CNC were disappointed as the stock returned -13.5% since the end of June (through 10/1) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
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