Is NxStage Medical, Inc. (NXTM) A Good Stock To Buy Right Now?

Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant out-performance. These stocks have been on a tear since the end of June, outperforming large-cap index funds by more than 10 percentage points. That’s why we pay special attention to hedge fund activity in these stocks.

NxStage Medical, Inc. (NASDAQ:NXTM) was in 26 hedge funds’ portfolios at the end of September. NXTM investors should be aware of a decrease in enthusiasm from smart money lately though. There were 27 hedge funds in our database with NXTM positions at the end of June. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a decline in popularity but it may still be more popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Crestwood Equity Partners LP (NYSE:CEQP), Rexford Industrial Realty Inc (NYSE:REXR), and TopBuild Corp (NYSE:BLD) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

Image Point Fr/Shutterstock.com

With all of this in mind, let’s take a look at the key action encompassing NxStage Medical, Inc. (NASDAQ:NXTM).

What does the smart money think about NxStage Medical, Inc. (NASDAQ:NXTM)?

Heading into the fourth quarter of 2016, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the previous quarter. This is still 30% higher than its popularity at the beginning of this year. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, James E. Flynn’s Deerfield Management has the most valuable position in NxStage Medical, Inc. (NASDAQ:NXTM), worth close to $102.4 million, accounting for 4.8% of its total 13F portfolio. Coming in second is Perceptive Advisors, led by Joseph Edelman, holding a $41.7 million position; 2.7% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors with similar optimism comprise Jerome Pfund and Michael Sjostrom’s Sectoral Asset Management, Justin John Ferayorni’s Tamarack Capital Management and Israel Englander’s Millennium Management. We should note that none of these fund managers were in our list of the 100 best performing hedge funds.

Seeing as NxStage Medical, Inc. (NASDAQ:NXTM) has witnessed falling interest from the entirety of the hedge funds we track, it’s easy to see that there exists a select few fund managers that decided to sell off their entire stakes last quarter. At the top of the heap, Mitchell Blutt’s Consonance Capital Management dropped the biggest stake of all the hedgies watched by Insider Monkey, worth close to $18.1 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund sold off about $4.5 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 1 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to NxStage Medical, Inc. (NASDAQ:NXTM). We will take a look at Crestwood Equity Partners LP (NYSE:CEQP), Rexford Industrial Realty Inc (NYSE:REXR), TopBuild Corp (NYSE:BLD), and Allegheny Technologies Incorporated (NYSE:ATI). This group of stocks’ market valuations match NXTM’s market valuation.

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 $133 million. That figure was $323 million in NXTM’s case. TopBuild Corp (NYSE:BLD) is the most popular stock in this table. On the other hand Crestwood Equity Partners LP (NYSE:CEQP) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks NxStage Medical, Inc. (NASDAQ:NXTM) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.