Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 5.7% in the 12 months ending October 26 (including dividend payments). Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of June 2014) generated a return of 15.1% during the same 12-month period, with 53% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like athenahealth, Inc (NASDAQ:ATHN).
Is athenahealth, Inc (NASDAQ:ATHN) worth your attention right now? Hedge funds are taking an optimistic view. The number of long hedge fund bets inched up by 9 in recent months. Our calculations also showed that athn isn’t among the 30 most popular stocks among hedge funds.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Let’s take a glance at the fresh hedge fund action surrounding athenahealth, Inc (NASDAQ:ATHN).
How are hedge funds trading athenahealth, Inc (NASDAQ:ATHN)?
At Q3’s end, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 50% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in ATHN over the last 13 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Citadel Investment Group was the largest shareholder of athenahealth, Inc (NASDAQ:ATHN), with a stake worth $101.5 million reported as of the end of September. Trailing Citadel Investment Group was Citadel Investment Group, which amassed a stake valued at $77.8 million. Elliott Management, Highbridge Capital Management, and GLG Partners were also very fond of the stock, giving the stock large weights in their portfolios.
With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. Pentwater Capital Management, managed by Matthew Halbower, established the most valuable position in athenahealth, Inc (NASDAQ:ATHN). Pentwater Capital Management had $15.4 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also made a $15.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Michael Doheny’s Freshford Capital Management, John Orrico’s Water Island Capital, and Robert Emil Zoellner’s Alpine Associates.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as athenahealth, Inc (NASDAQ:ATHN) but similarly valued. We will take a look at Trinity Industries, Inc. (NYSE:TRN), Mattel, Inc. (NASDAQ:MAT), United States Steel Corporation (NYSE:X), and First Citizens BancShares Inc. (NASDAQ:FCNCA). This group of stocks’ market valuations match ATHN’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TRN | 33 | 1280684 | 2 |
| MAT | 16 | 838039 | 2 |
| X | 32 | 636345 | 2 |
| FCNCA | 19 | 258819 | -1 |
| Average | 25 | 753472 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $753 million. That figure was $335 million in ATHN’s case. Trinity Industries, Inc. (NYSE:TRN) is the most popular stock in this table. On the other hand Mattel, Inc. (NASDAQ:MAT) is the least popular one with only 16 bullish hedge fund positions. athenahealth, Inc (NASDAQ:ATHN) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard TRN might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
