Is HealthStream, Inc. (NASDAQ:HSTM) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before doing days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also have numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Hedge fund interest in HealthStream, Inc. (NASDAQ:HSTM) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare HSTM to other stocks including NexPoint Residential Trust, Inc. (NYSE:NXRT), Precision BioSciences, Inc. (NASDAQ:DTIL), and Golar LNG Partners LP (NASDAQ:GMLP) to get a better sense of its popularity.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Cliff Asness of AQR Capital Management
We’re going to check out the new hedge fund action encompassing HealthStream, Inc. (NASDAQ:HSTM).
How are hedge funds trading HealthStream, Inc. (NASDAQ:HSTM)?
Heading into the second quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 13 hedge funds with a bullish position in HSTM a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
The largest stake in HealthStream, Inc. (NASDAQ:HSTM) was held by Renaissance Technologies, which reported holding $10.5 million worth of stock at the end of March. It was followed by Arrowstreet Capital with a $9.1 million position. Other investors bullish on the company included D E Shaw, AQR Capital Management, and GLG Partners.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Springbok Capital. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Qtron Investments).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as HealthStream, Inc. (NASDAQ:HSTM) but similarly valued. We will take a look at NexPoint Residential Trust, Inc. (NYSE:NXRT), Precision BioSciences, Inc. (NASDAQ:DTIL), Golar LNG Partners LP (NASDAQ:GMLP), and ATN International, Inc. (NASDAQ:ATNI). This group of stocks’ market values resemble HSTM’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NXRT | 10 | 145693 | 1 |
| DTIL | 14 | 91003 | 14 |
| GMLP | 4 | 35267 | 0 |
| ATNI | 10 | 59750 | 0 |
| Average | 9.5 | 82928 | 3.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $83 million. That figure was $49 million in HSTM’s case. Precision BioSciences, Inc. (NASDAQ:DTIL) is the most popular stock in this table. On the other hand Golar LNG Partners LP (NASDAQ:GMLP) is the least popular one with only 4 bullish hedge fund positions. HealthStream, Inc. (NASDAQ:HSTM) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately HSTM wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on HSTM were disappointed as the stock returned -8.4% during the same 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
