Medifast, Inc. (MED): Hedge Funds Are Bullish and Insiders Are Bearish, What Should You Do?

Is Medifast, Inc. (NYSE:MED) a bargain? Hedge funds are in a bullish mood. The number of bullish hedge fund positions advanced by 3 recently.

In the eyes of most stock holders, hedge funds are perceived as slow, outdated financial vehicles of years past. While there are over 8000 funds trading at the moment, we hone in on the elite of this group, around 450 funds. Most estimates calculate that this group controls the majority of all hedge funds’ total capital, and by keeping an eye on their highest performing picks, we have deciphered a few investment strategies that have historically outpaced the broader indices. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points a year for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have outpaced the S&P 500 index by 23.3 percentage points in 8 months (see all of our picks from August).

Equally as important, positive insider trading activity is a second way to break down the financial markets. As the old adage goes: there are a number of stimuli for an upper level exec to cut shares of his or her company, but only one, very simple reason why they would behave bullishly. Plenty of empirical studies have demonstrated the useful potential of this tactic if shareholders understand what to do (learn more here).

With all of this in mind, we’re going to take a gander at the latest action regarding Medifast, Inc. (NYSE:MED).

Hedge fund activity in Medifast, Inc. (NYSE:MED)

At Q1’s end, a total of 13 of the hedge funds we track held long positions in this stock, a change of 30% from the previous quarter. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their stakes substantially.

When looking at the hedgies we track, Renaissance Technologies, managed by Jim Simons, holds the biggest position in Medifast, Inc. (NYSE:MED). Renaissance Technologies has a $9.1 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Sitting at the No. 2 spot is AQR Capital Management, managed by Cliff Asness, which held a $4.1 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other peers that are bullish include Robert B. Gillam’s McKinley Capital Management, Israel Englander’s Millennium Management and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

As one would reasonably expect, key hedge funds were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the biggest position in Medifast, Inc. (NYSE:MED). Arrowstreet Capital had 0.8 million invested in the company at the end of the quarter. Mark N. Diker’s Diker Management also made a $0.8 million investment in the stock during the quarter. The following funds were also among the new MED investors: Ken Gray and Steve Walsh’s Bryn Mawr Capital and Matthew Tewksbury’s Stevens Capital Management.

What have insiders been doing with Medifast, Inc. (NYSE:MED)?

Insider trading activity, especially when it’s bullish, is particularly usable when the primary stock in question has experienced transactions within the past 180 days. Over the last six-month time frame, Medifast, Inc. (NYSE:MED) has seen zero unique insiders buying, and 1 insider sales (see the details of insider trades here).

Let’s also examine hedge fund and insider activity in other stocks similar to Medifast, Inc. (NYSE:MED). These stocks are West Marine, Inc. (NASDAQ:WMAR), TravelCenters of America LLC (NYSEAMEX:TA), MarineMax, Inc. (NYSE:HZO), 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS), and Winmark Corporation (NASDAQ:WINA). This group of stocks are in the specialty retail, other industry and their market caps are similar to MED’s market cap.