HEALTHSOUTH Corp. (NYSE:HLS): Hedge Funds Are Bearish and Insiders Are Bullish, What Should You Do?

Is HEALTHSOUTH Corp. (NYSE:HLS) the right investment to pursue these days? The best stock pickers are in a bearish mood. The number of long hedge fund positions fell by 2 recently.

If you’d ask most traders, hedge funds are seen as worthless, old financial tools of years past. While there are more than 8000 funds trading at the moment, we choose to focus on the aristocrats of this group, about 450 funds. Most estimates calculate that this group controls the majority of the smart money’s total capital, and by keeping an eye on their top picks, we have unsheathed a few investment strategies that have historically outstripped the S&P 500 index. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points per annum 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 25 percentage points in 6.5 month (see all of our picks from August).

Just as key, optimistic insider trading activity is another way to break down the marketplace. Obviously, there are lots of incentives for a corporate insider to cut shares of his or her company, but only one, very clear reason why they would behave bullishly. Many academic studies have demonstrated the valuable potential of this strategy if you understand what to do (learn more here).

Now, let’s take a gander at the key action regarding HEALTHSOUTH Corp. (NYSE:HLS).

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

At year’s end, a total of 21 of the hedge funds we track were bullish in this stock, a change of -9% from the previous quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were boosting their stakes meaningfully.

Of the funds we track, Osterweis Capital Management, managed by John Osterweis, holds the biggest position in HEALTHSOUTH Corp. (NYSE:HLS). Osterweis Capital Management has a $63 million position in the stock, comprising 2.8% of its 13F portfolio. Coming in second is Mariko Gordon of Daruma Asset Management, with a $51 million position; 0.2% of its 13F portfolio is allocated to the stock. Remaining hedgies that hold long positions include Chuck Royce’s Royce & Associates, Jeffrey Edwards’s East Peak Partners and D. E. Shaw’s D E Shaw.

Seeing as HEALTHSOUTH Corp. (NYSE:HLS) has faced a declination in interest from the smart money, logic holds that there were a few funds who sold off their entire stakes in Q4. Interestingly, James Dondero’s Highland Capital Management sold off the biggest position of the “upper crust” of funds we monitor, valued at close to $8 million in stock., and Dmitry Balyasny of Balyasny Asset Management was right behind this move, as the fund dropped about $7 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 2 funds in Q4.

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

Insider buying is most useful when the company we’re looking at has experienced transactions within the past six months. Over the last 180-day time period, HEALTHSOUTH Corp. (NYSE:HLS) has seen 1 unique insiders purchasing, and zero insider sales (see the details of insider trades here).

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

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