Healthways, Inc. (NASDAQ:HWAY) announced on Thursday that it is revising its guidance downwards for 2015, citing various reasons for the guidance cut. Some of those include a slowing business development, lower than expected revenues from health plan contracts, its Ornish reversal program, and a slowing Blue Zone project. The company set new revenue expectation for 2015 at $770 million to $785 million, a significant cut from the previous guidance of $800 million to $825 million. Healthways, Inc. (NASDAQ:HWAY) reported total revenue of $742 million in 2014. Due to the guidance cut, shares of Healthways plunged in after-hours trading last night, and are currently trading down by 20% in pre-market trading this morning.
We keep an eye on hedge fund sentiment and insider sentiment to anticipate future stock performance. Many hedge fund managers have upped their holdings in Healthways, Inc. (NASDAQ:HWAY)’s stock and many have even initiated positions in the stock. By the end of Q4 2014, there were 17 hedge fund positions in the stock. But this number increased by 35% to 23 hedge fund positions in the stock by the end of Q1. This shows a strong positive hedge fund sentiment towards the stock.
Hedge funds are generally considered by investors as under performing funds, mainly due to the fact that net returns have under performed the S&P 500 for six years. This may be due to the fact that hedge funds have little option but to invest in large-cap stocks with their vast sums of capital, even though these stocks don’t deliver the same high returns that their best smaller-cap picks typically do. So why do they take on so much capital and invest in large-cap stocks? Because the more money hedge funds are managing, the more fees they collect and the more money they make. That said, most hedge funds also put great effort into analyzing and investing in small-cap stocks, these picks are simply dwarfed in size by their large-cap selections. We monitor these small-cap investments by hedge funds and came up with a small-cap strategy based on extensive research, which has managed to return 142% since August 2012 (read the details). During the same period the S&P 500 managed to return less than 60%. Our small-cap strategy has outperformed the market by around 83 percentage points in the last 33 months. This is why we feel that hedge fund activities are important.
Lets take a look at insider sentiment, another important indicator which can give us a different perspective on the stock. In the case of Healthways, Inc. (NASDAQ:HWAY), there was no insider activity (purchasing or selling) recorded in the first quarter. Insider sentiment for Healthways, Inc. (NASDAQ:HWAY) was thus neutral in the first quarter.
Let’s check out the latest action by hedge funds surrounding Healthways, Inc. (NASDAQ:HWAY).
Hedge fund activity in Healthways, Inc. (NASDAQ:HWAY)
The number of hedge funds with a position in the stock went up by 6 at the end of the first quarter, when compared to the end of Q4. This was a 35% increase in the hedge fund positions in Healthways, Inc. (NASDAQ:HWAY). This shows a strong positive hedge fund sentiment for the stock. So it is obvious that many hedge fund managers have increased their position in the stock and many have initiated a position in the stock in Q1 as well.
According to Insider Monkey’s database, Conan Laughlin’s North Tide Capital holds the number one position in Healthways, Inc. (NASDAQ:HWAY) with 3.85 million shares worth close to $75.8 million, which accounts for 5.7% of its total 13F portfolio. Following North Tide Capital is Stelliam Investment Management, managed by Ross Margolies with 2 million shares valued at $40.7 million and accounting for 0.9% of its 13F portfolio. Other hedgies that are bullish consist of Steve Cohen’s Point72 Asset Management, Mitchell Blutt’s Consonance Capital Management, and Israel Englander‘s Millennium Management.
Many hedge fund managers have initiated their position in the stock. Leading the way is Pine River Capital Management, managed by Brian Taylor, which bought 518,765 shares worth $10.2 million in the first quarter. Following Brian Taylor is Peter Muller’s PDT Partners which initiated its position in the stock with the purchase of 44,467 shares worth around $0.9 million during the first quarter. Other hedge funds which had initiated their position in the stock include Matthew Tewksbury’s Stevens Capital Management, Paul Tudor Jones‘ Tudor Investment Corp, and Mike Vranos’ Ellington.
Hedge funds placed their bets on Healthways, Inc. (NASDAQ:HWAY) stock, but they were wrong on this one, as the stock plunged following a clearly unexpected guidance cut for 2015 by the company. Hedge fund sentiment is a good indicator on average, but there is no indicator that can consistently predict the direction of stocks. This is a case where as of right now, hedge funds got it wrong.
Disclosure: None
