Is HSTM A Good Stock To Buy Now?

With the third-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the fourth quarter. One of these stocks was HealthStream, Inc. (NASDAQ:HSTM).

Is HSTM a good stock to buy now? HealthStream, Inc. (NASDAQ:HSTM) shareholders have witnessed a decrease in hedge fund interest in recent months. HealthStream, Inc. (NASDAQ:HSTM) was in 14 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 17. Our calculations also showed that HSTM isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 percentage points since March 2017 (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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Gavin Saitowitz of Prelude Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let’s take a look at the fresh hedge fund action encompassing HealthStream, Inc. (NASDAQ:HSTM).

Do Hedge Funds Think HSTM Is A Good Stock To Buy Now?

At third quarter’s end, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HSTM over the last 21 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, holds the biggest position in HealthStream, Inc. (NASDAQ:HSTM). Renaissance Technologies has a $21.8 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Renaissance Technologies’s heels is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $7 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other professional money managers that are bullish consist of D. E. Shaw’s D E Shaw, Douglas T. Granat’s Trigran Investments and Paul Marshall and Ian Wace’s Marshall Wace LLP. In terms of the portfolio weights assigned to each position Trigran Investments allocated the biggest weight to HealthStream, Inc. (NASDAQ:HSTM), around 1.16% of its 13F portfolio. McKinley Capital Management is also relatively very bullish on the stock, setting aside 0.24 percent of its 13F equity portfolio to HSTM.

Judging by the fact that HealthStream, Inc. (NASDAQ:HSTM) has experienced a decline in interest from the aggregate hedge fund industry, it’s safe to say that there is a sect of money managers that slashed their entire stakes heading into Q4. It’s worth mentioning that Roger Ibbotson’s Zebra Capital Management dumped the biggest position of all the hedgies watched by Insider Monkey, worth an estimated $0.5 million in stock, and Donald Sussman’s Paloma Partners was right behind this move, as the fund dropped about $0.2 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 3 funds heading into Q4.

Let’s now review hedge fund activity in other stocks similar to HealthStream, Inc. (NASDAQ:HSTM). We will take a look at Petmed Express Inc (NASDAQ:PETS), Sinovac Biotech Ltd. (NASDAQ:SVA), Inogen Inc (NASDAQ:INGN), OFG Bancorp (NYSE:OFG), B. Riley Financial, Inc. (NASDAQ:RILY), Pampa Energia S.A. (NYSE:PAM), and Century Aluminum Co (NASDAQ:CENX). This group of stocks’ market caps resemble HSTM’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $55 million. That figure was $58 million in HSTM’s case. Petmed Express Inc (NASDAQ:PETS) is the most popular stock in this table. On the other hand Sinovac Biotech Ltd. (NASDAQ:SVA) is the least popular one with only 3 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. Our overall hedge fund sentiment score for HSTM is 61.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and beat the market again by 16.2 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 0% since the end of September (through 12/8) 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 many of these stocks already outperformed the market so far this year.

Disclosure: None. This article was originally published at Insider Monkey.