At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Castlight Health Inc (NYSE:CSLT) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Castlight Health Inc (NYSE:CSLT) has seen an increase in enthusiasm from smart money lately. Castlight Health Inc (NYSE:CSLT) was in 18 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 19. Our calculations also showed that CSLT isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
David Atterbury of Whetstone Capital Advisors
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 are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Keeping this in mind let’s analyze the key hedge fund action encompassing Castlight Health Inc (NYSE:CSLT).
Hedge fund activity in Castlight Health Inc (NYSE:CSLT)
At Q2’s end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 38% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CSLT over the last 20 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Raging Capital Management held the most valuable stake in Castlight Health Inc (NYSE:CSLT), which was worth $8.7 million at the end of the third quarter. On the second spot was Whetstone Capital Advisors which amassed $2.6 million worth of shares. Renaissance Technologies, Royce & Associates, and Maverick Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Raging Capital Management allocated the biggest weight to Castlight Health Inc (NYSE:CSLT), around 7.35% of its 13F portfolio. Fondren Management is also relatively very bullish on the stock, earmarking 0.96 percent of its 13F equity portfolio to CSLT.
Consequently, specific money managers were leading the bulls’ herd. Whetstone Capital Advisors, managed by David Atterbury, established the most valuable position in Castlight Health Inc (NYSE:CSLT). Whetstone Capital Advisors had $2.6 million invested in the company at the end of the quarter. Bradley Louis Radoff’s Fondren Management also made a $0.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Donald Sussman’s Paloma Partners, Michael Gelband’s ExodusPoint Capital, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Castlight Health Inc (NYSE:CSLT) but similarly valued. These stocks are Drive Shack Inc. (NYSE:DS), Celsion Corporation (NASDAQ:CLSN), Five Star Senior Living Inc. (NASDAQ:FVE), Protalix BioTherapeutics Inc. (NYSE:PLX), Resonant Inc. (NASDAQ:RESN), Bel Fuse, Inc. (NASDAQ:BELFA), and Community Bankers Trust Corp. (NASDAQ:ESXB). This group of stocks’ market valuations resemble CSLT’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DS | 9 | 4705 | 6 |
| CLSN | 4 | 2773 | 3 |
| FVE | 5 | 16395 | -2 |
| PLX | 4 | 11384 | 2 |
| RESN | 5 | 10412 | 1 |
| BELFA | 4 | 4098 | 0 |
| ESXB | 6 | 14825 | -1 |
| Average | 5.3 | 9227 | 1.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.3 hedge funds with bullish positions and the average amount invested in these stocks was $9 million. That figure was $19 million in CSLT’s case. Drive Shack Inc. (NYSE:DS) is the most popular stock in this table. On the other hand Celsion Corporation (NASDAQ:CLSN) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Castlight Health Inc (NYSE:CSLT) is more popular among hedge funds. Our overall hedge fund sentiment score for CSLT is 88.4. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 24.8% in 2020 through the end of September but still managed to beat the market by 19.3 percentage points. Hedge funds were also right about betting on CSLT as the stock returned 36.1% since the end of June and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.
