We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Healthequity Inc (NASDAQ:HQY) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Is Healthequity Inc (NASDAQ:HQY) a bargain? Investors who are in the know are turning bullish. The number of bullish hedge fund bets increased by 1 recently. Our calculations also showed that HQY isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). HQY was in 23 hedge funds’ portfolios at the end of December. There were 22 hedge funds in our database with HQY positions at the end of the previous quarter.
In the 21st century investor’s toolkit there are plenty of signals stock market investors employ to appraise their holdings. A duo of the less known signals are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the best money managers can outclass their index-focused peers by a significant margin (see the details here).
Kris Jenner of Rock Springs Capital Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to go over the new hedge fund action encompassing Healthequity Inc (NASDAQ:HQY).
How have hedgies been trading Healthequity Inc (NASDAQ:HQY)?
At the end of the fourth quarter, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards HQY over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Echo Street Capital Management was the largest shareholder of Healthequity Inc (NASDAQ:HQY), with a stake worth $53.2 million reported as of the end of September. Trailing Echo Street Capital Management was Millennium Management, which amassed a stake valued at $19.8 million. Two Sigma Advisors, Rock Springs Capital Management, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Red Cedar Management allocated the biggest weight to Healthequity Inc (NASDAQ:HQY), around 7.75% of its 13F portfolio. Echo Street Capital Management is also relatively very bullish on the stock, earmarking 0.82 percent of its 13F equity portfolio to HQY.
As industrywide interest jumped, specific money managers were leading the bulls’ herd. Rock Springs Capital Management, managed by Kris Jenner, Gordon Bussard, Graham McPhail, created the largest position in Healthequity Inc (NASDAQ:HQY). Rock Springs Capital Management had $15.2 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also initiated a $2 million position during the quarter. The following funds were also among the new HQY investors: Minhua Zhang’s Weld Capital Management, Matthew Hulsizer’s PEAK6 Capital Management, and Jinghua Yan’s TwinBeech Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Healthequity Inc (NASDAQ:HQY) but similarly valued. We will take a look at ServiceMaster Global Holdings Inc (NYSE:SERV), Trex Company, Inc. (NYSE:TREX), Elastic N.V. (NYSE:ESTC), and Companhia Energetica de Minas Gerais (NYSE:CIG). This group of stocks’ market values are closest to HQY’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SERV | 42 | 1197647 | 13 |
| TREX | 20 | 110539 | -1 |
| ESTC | 39 | 919990 | 8 |
| CIG | 9 | 57674 | 1 |
| Average | 27.5 | 571463 | 5.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $571 million. That figure was $164 million in HQY’s case. ServiceMaster Global Holdings Inc (NYSE:SERV) is the most popular stock in this table. On the other hand Companhia Energetica de Minas Gerais (NYSE:CIG) is the least popular one with only 9 bullish hedge fund positions. Healthequity Inc (NASDAQ:HQY) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately HQY wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HQY investors were disappointed as the stock returned -28.6% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
