How do you pick the next stock to invest in? One way would be to spend hours of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Allscripts Healthcare Solutions Inc (NASDAQ:MDRX).
Is Allscripts Healthcare Solutions Inc (NASDAQ:MDRX) a superb investment now? The smart money is in a pessimistic mood. The number of bullish hedge fund bets fell by 2 lately. Our calculations also showed that MDRX isn’t among the 30 most popular stocks among hedge funds. MDRX was in 18 hedge funds’ portfolios at the end of December. There were 20 hedge funds in our database with MDRX holdings at the end of the previous quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 32 percentage points since May 2014 through March 12, 2019 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s view the recent hedge fund action regarding Allscripts Healthcare Solutions Inc (NASDAQ:MDRX).
Hedge fund activity in Allscripts Healthcare Solutions Inc (NASDAQ:MDRX)
At the end of the fourth quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the previous quarter. On the other hand, there were a total of 21 hedge funds with a bullish position in MDRX a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
Among these funds, Fisher Asset Management held the most valuable stake in Allscripts Healthcare Solutions Inc (NASDAQ:MDRX), which was worth $48.3 million at the end of the fourth quarter. On the second spot was D E Shaw which amassed $32.7 million worth of shares. Moreover, Tamarack Capital Management, Royce & Associates, and GLG Partners were also bullish on Allscripts Healthcare Solutions Inc (NASDAQ:MDRX), allocating a large percentage of their portfolios to this stock.
Seeing as Allscripts Healthcare Solutions Inc (NASDAQ:MDRX) has experienced bearish sentiment from the smart money, it’s easy to see that there lies a certain “tier” of hedge funds that decided to sell off their entire stakes by the end of the third quarter. It’s worth mentioning that David Harding’s Winton Capital Management said goodbye to the biggest investment of all the hedgies watched by Insider Monkey, worth about $12.2 million in call options. Israel Englander’s fund, Millennium Management, also said goodbye to its call options, about $7.8 million worth. These transactions are interesting, as total hedge fund interest dropped by 2 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks similar to Allscripts Healthcare Solutions Inc (NASDAQ:MDRX). We will take a look at Belden Inc. (NYSE:BDC), Everbridge, Inc. (NASDAQ:EVBG), Shake Shack Inc (NYSE:SHAK), and Guess’, Inc. (NYSE:GES). This group of stocks’ market caps match MDRX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BDC | 15 | 40502 | 5 |
| EVBG | 22 | 251142 | 3 |
| SHAK | 19 | 247116 | -3 |
| GES | 19 | 106696 | 2 |
| Average | 18.75 | 161364 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $161 million. That figure was $159 million in MDRX’s case. Everbridge, Inc. (NASDAQ:EVBG) is the most popular stock in this table. On the other hand Belden Inc. (NYSE:BDC) is the least popular one with only 15 bullish hedge fund positions. Allscripts Healthcare Solutions Inc (NASDAQ:MDRX) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately MDRX wasn’t nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); MDRX investors were disappointed as the stock returned -2.9% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.
