How do you pick the next stock to invest in? One way would be to spend days 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 Streamline Health Solutions Inc. (NASDAQ:STRM).
Is Streamline Health Solutions (STRM) a good stock to buy now? Hedge funds were in an optimistic mood. The number of long hedge fund bets advanced by 1 recently. Streamline Health Solutions Inc. (NASDAQ:STRM) was in 6 hedge funds’ portfolios at the end of September. The all time high for this statistics is 8. Our calculations also showed that STRM 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.
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’ 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 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 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.
Justin John Ferayorni of Tamarack Capital Management
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 we’re going to analyze the key hedge fund action encompassing Streamline Health Solutions Inc. (NASDAQ:STRM).
How are hedge funds trading Streamline Health Solutions Inc. (NASDAQ:STRM)?
At third quarter’s end, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the previous quarter. By comparison, 5 hedge funds held shares or bullish call options in STRM a year ago. So, let’s find out 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, Tamarack Capital Management, managed by Justin John Ferayorni, holds the biggest position in Streamline Health Solutions Inc. (NASDAQ:STRM). Tamarack Capital Management has a $6.7 million position in the stock, comprising 2.1% of its 13F portfolio. The second most bullish fund manager is Harbert Management, managed by Raymond J. Harbert, which holds a $5.2 million position; the fund has 6.4% of its 13F portfolio invested in the stock. Other professional money managers that are bullish encompass Wilmot B. Harkey and Daniel Mack’s Nantahala Capital Management, Josh Goldberg’s G2 Investment Partners Management and Renaissance Technologies. In terms of the portfolio weights assigned to each position Harbert Management allocated the biggest weight to Streamline Health Solutions Inc. (NASDAQ:STRM), around 6.37% of its 13F portfolio. Tamarack Capital Management is also relatively very bullish on the stock, dishing out 2.07 percent of its 13F equity portfolio to STRM.
As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Millennium Management, managed by Israel Englander, established the largest position in Streamline Health Solutions Inc. (NASDAQ:STRM). Millennium Management had $0.3 million invested in the company at the end of the quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Streamline Health Solutions Inc. (NASDAQ:STRM) but similarly valued. These stocks are Natural Alternatives International, Inc. (NASDAQ:NAII), Hudson Technologies, Inc. (NASDAQ:HDSN), Pathfinder Bancorp, Inc. (NASDAQ:PBHC), Lee Enterprises, Incorporated (NYSE:LEE), Medley Capital Corp (NYSE:MCC), Cumberland Pharmaceuticals, Inc. (NASDAQ:CPIX), and Trinity Biotech plc (NASDAQ:TRIB). This group of stocks’ market valuations are closest to STRM’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NAII | 2 | 4323 | 1 |
| HDSN | 2 | 75 | 0 |
| PBHC | 1 | 2748 | 0 |
| LEE | 9 | 10784 | -6 |
| MCC | 1 | 892 | -4 |
| CPIX | 3 | 6329 | 0 |
| TRIB | 3 | 3526 | -2 |
| Average | 3 | 4097 | -1.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 3 hedge funds with bullish positions and the average amount invested in these stocks was $4 million. That figure was $18 million in STRM’s case. Lee Enterprises, Incorporated (NYSE:LEE) is the most popular stock in this table. On the other hand Pathfinder Bancorp, Inc. (NASDAQ:PBHC) is the least popular one with only 1 bullish hedge fund positions. Streamline Health Solutions Inc. (NASDAQ:STRM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for STRM is 59.8. 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 30.7% in 2020 through November 27th and beat the market again by 16.1 percentage points. Unfortunately STRM wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on STRM were disappointed as the stock returned -2.6% since the end of September (through 11/27) 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.
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Disclosure: None. This article was originally published at Insider Monkey.
