LHC Group, Inc. (LHCG): Are Hedge Funds Right About This Stock?

·6 min read

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 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 LHC Group, Inc. (NASDAQ:LHCG).

LHC Group, Inc. (NASDAQ:LHCG) was in 20 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 30. LHCG has seen an increase in support from the world's most elite money managers of late. There were 18 hedge funds in our database with LHCG holdings at the end of March. Our calculations also showed that LHCG isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Noam Gottesman GLG Partners
Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, plant based food market is expected to explode 100-fold by 2050, so we are checking out this under-the-radar stock. We go through lists like the 10 best growth stocks to buy 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. Keeping this in mind we're going to take a gander at the recent hedge fund action regarding LHC Group, Inc. (NASDAQ:LHCG).

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

At the end of June, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in LHCG over the last 24 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in LHC Group, Inc. (NASDAQ:LHCG) was held by Millennium Management, which reported holding $29.9 million worth of stock at the end of June. It was followed by Bayberry Capital Partners with a $19 million position. Other investors bullish on the company included Integral Health Asset Management, GLG Partners, and D E Shaw. In terms of the portfolio weights assigned to each position Bayberry Capital Partners allocated the biggest weight to LHC Group, Inc. (NASDAQ:LHCG), around 5.37% of its 13F portfolio. Integral Health Asset Management is also relatively very bullish on the stock, earmarking 2.43 percent of its 13F equity portfolio to LHCG.

Now, key hedge funds were leading the bulls' herd. Bridgewater Associates, managed by Ray Dalio, initiated the biggest position in LHC Group, Inc. (NASDAQ:LHCG). Bridgewater Associates had $6.3 million invested in the company at the end of the quarter. John Overdeck and David Siegel's Two Sigma Advisors also initiated a $0.4 million position during the quarter. The only other fund with a brand new LHCG position is Gavin Saitowitz and Cisco J. del Valle's Prelude Capital (previously Springbok Capital).

Let's check out hedge fund activity in other stocks similar to LHC Group, Inc. (NASDAQ:LHCG). We will take a look at Nexstar Media Group, Inc. (NASDAQ:NXST), MINISO Group Holding Limited (NYSE:MNSO), Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN), I-Mab (NASDAQ:IMAB), MDU Resources Group Inc (NYSE:MDU), American Eagle Outfitters Inc. (NYSE:AEO), and MP Materials Corp. (NYSE:MP). This group of stocks' market values are similar to LHCG's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NXST,34,972867,-1 MNSO,17,185606,5 BHVN,27,666482,-6 IMAB,18,873769,-2 MDU,21,169504,0 AEO,41,1875130,-2 MP,20,2565580,-9 Average,25.4,1044134,-2.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.4 hedge funds with bullish positions and the average amount invested in these stocks was $1044 million. That figure was $109 million in LHCG's case. American Eagle Outfitters Inc. (NYSE:AEO) is the most popular stock in this table. On the other hand MINISO Group Holding Limited (NYSE:MNSO) is the least popular one with only 17 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 33.3. 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 negative signal and 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 24% in 2021 through October 22nd and surpassed the market again by 1.6 percentage points. Unfortunately LHCG wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); LHCG investors were disappointed as the stock returned -27.3% since the end of June (through 10/22) 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 most of these stocks already outperformed the market in 2021.

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

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