Were Hedge Funds Right About Addus Homecare Corporation (ADUS)?

·6 min read

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren't timid and registered double digit market beating gains. Financials, energy and industrial stocks initially suffered the most but many of these stocks delivered strong returns since November and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment towards Addus Homecare Corporation (NASDAQ:ADUS) changed recently.

Is Addus Homecare Corporation (NASDAQ:ADUS) a bargain? Prominent investors were in a pessimistic mood. The number of long hedge fund bets shrunk by 1 recently. Addus Homecare Corporation (NASDAQ:ADUS) was in 17 hedge funds' portfolios at the end of March. The all time high for this statistic is 24. Our calculations also showed that ADUS isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Matthew Hulsizer PEAK6 Capital
Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

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 we're going to take a look at the new hedge fund action surrounding Addus Homecare Corporation (NASDAQ:ADUS).

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

At the end of March, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the previous quarter. By comparison, 15 hedge funds held shares or bullish call options in ADUS a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Addus Homecare Corporation (NASDAQ:ADUS) was held by Polar Capital, which reported holding $30.4 million worth of stock at the end of December. It was followed by Marshall Wace LLP with a $10.4 million position. Other investors bullish on the company included Kent Lake Capital, Royce & Associates, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Kent Lake Capital allocated the biggest weight to Addus Homecare Corporation (NASDAQ:ADUS), around 2.34% of its 13F portfolio. Cruiser Capital Advisors is also relatively very bullish on the stock, setting aside 2.05 percent of its 13F equity portfolio to ADUS.

Judging by the fact that Addus Homecare Corporation (NASDAQ:ADUS) has faced bearish sentiment from hedge fund managers, we can see that there exists a select few hedgies that slashed their full holdings last quarter. Interestingly, Steve Cohen's Point72 Asset Management sold off the biggest stake of the "upper crust" of funds followed by Insider Monkey, valued at an estimated $5.6 million in stock, and Pasco Alfaro and Richard Turnure's Miura Global Management was right behind this move, as the fund sold off about $5 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 1 funds last quarter.

Let's also examine hedge fund activity in other stocks similar to Addus Homecare Corporation (NASDAQ:ADUS). We will take a look at Malibu Boats Inc (NASDAQ:MBUU), Cytokinetics, Inc. (NASDAQ:CYTK), Steelcase Inc. (NYSE:SCS), Northwest Natural Holding Company (NYSE:NWN), ICF International Inc (NASDAQ:ICFI), Aluminum Corp. of China Limited (NYSE:ACH), and Stratasys, Ltd. (NASDAQ:SSYS). All of these stocks' market caps are similar to ADUS's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MBUU,16,150234,0 CYTK,29,585164,3 SCS,19,127268,2 NWN,10,28380,0 ICFI,12,28041,-1 ACH,3,7519,-1 SSYS,24,481918,8 Average,16.1,201218,1.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.1 hedge funds with bullish positions and the average amount invested in these stocks was $201 million. That figure was $62 million in ADUS's case. Cytokinetics, Inc. (NASDAQ:CYTK) is the most popular stock in this table. On the other hand Aluminum Corp. of China Limited (NYSE:ACH) is the least popular one with only 3 bullish hedge fund positions. Addus Homecare Corporation (NASDAQ:ADUS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ADUS is 52.2. 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 28.5% in 2021 through July 23rd and beat the market again by 10.1 percentage points. Unfortunately ADUS wasn't nearly as popular as these 5 stocks and hedge funds that were betting on ADUS were disappointed as the stock returned -19.1% since the end of March (through 7/23) 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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