HEALTHSOUTH Corp. (HLS): Insiders Are Buying, Should You?

Is HEALTHSOUTH Corp. (NYSE:HLS) a good stock to buy now? Hedge funds are taking a pessimistic view. The number of long hedge fund bets stayed the same which is a slightly negative development in our experience

If you’d ask most shareholders, hedge funds are viewed as unimportant, outdated financial vehicles of years past. While there are greater than 8000 funds with their doors open at present, we at Insider Monkey hone in on the moguls of this group, about 450 funds. It is estimated that this group oversees the majority of the smart money’s total capital, and by keeping an eye on their top investments, we have identified a few investment strategies that have historically outperformed the market. Our small-cap hedge fund strategy beat the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have trumped the S&P 500 index by 23.3 percentage points in 8 months (see all of our picks from August).

Equally as important, optimistic insider trading activity is another way to break down the investments you’re interested in. Just as you’d expect, there are a number of motivations for a corporate insider to cut shares of his or her company, but just one, very simple reason why they would buy. Many academic studies have demonstrated the valuable potential of this method if investors understand what to do (learn more here).

With all of this in mind, we’re going to take a look at the recent action surrounding HEALTHSOUTH Corp. (NYSE:HLS).

What have hedge funds been doing with HEALTHSOUTH Corp. (NYSE:HLS)?

Heading into Q2, a total of 22 of the hedge funds we track were bullish in this stock, a change of 0% from one quarter earlier. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their holdings meaningfully.

According to our comprehensive database, John Osterweis’s Osterweis Capital Management had the biggest position in HEALTHSOUTH Corp. (NYSE:HLS), worth close to $83.8 million, accounting for 3.2% of its total 13F portfolio. The second largest stake is held by Mariko Gordon of Daruma Asset Management, with a $65.6 million position; 3.3% of its 13F portfolio is allocated to the company. Remaining hedge funds that hold long positions include Jeffrey Edwards’s East Peak Partners, Chuck Royce’s Royce & Associates and Jim Simons’s Renaissance Technologies.

Due to the fact that HEALTHSOUTH Corp. (NYSE:HLS) has witnessed falling interest from the aggregate hedge fund industry, it’s safe to say that there is a sect of funds who sold off their full holdings in Q1. It’s worth mentioning that D. E. Shaw’s D E Shaw cut the biggest investment of the “upper crust” of funds we key on, comprising an estimated $15.1 million in stock., and Robert B. Gillam of McKinley Capital Management was right behind this move, as the fund dumped about $2.5 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

How have insiders been trading HEALTHSOUTH Corp. (NYSE:HLS)?

Insider trading activity, especially when it’s bullish, is particularly usable when the company in question has experienced transactions within the past six months. Over the latest half-year time period, HEALTHSOUTH Corp. (NYSE:HLS) has experienced 1 unique insiders buying, and 1 insider sales (see the details of insider trades here).

Let’s also examine hedge fund and insider activity in other stocks similar to HEALTHSOUTH Corp. (NYSE:HLS). These stocks are Fresenius Medical Care AG & Co. (ADR) (NYSE:FMS), IPC The Hospitalist Company Inc (NASDAQ:IPCM), Hanger Inc (NYSE:HGR), Mednax Inc. (NYSE:MD), and Acadia Healthcare Company Inc (NASDAQ:ACHC). This group of stocks are in the specialized health services industry and their market caps resemble HLS’s market cap.

With the results exhibited by the aforementioned tactics, retail investors should always keep an eye on hedge fund and insider trading sentiment, and HEALTHSOUTH Corp. (NYSE:HLS) shareholders fit into this picture quite nicely.

Click here to learn why you should track hedge funds