EnteroMedics Inc (ETRM): Are Hedge Funds Right About This Stock?

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Is EnteroMedics Inc (NASDAQ:ETRM) a buy here? Prominent investors are getting more optimistic. The number of long hedge fund positions inched up by 1 in recent months.

EnteroMedics Inc (NASDAQ:ETRM)

To most traders, hedge funds are seen as unimportant, outdated investment vehicles of yesteryear. While there are greater than 8000 funds with their doors open today, we hone in on the moguls of this group, about 450 funds. It is widely believed that this group oversees the majority of the smart money’s total asset base, and by keeping an eye on their top investments, we have determined a few investment strategies that have historically outpaced the broader indices. Our small-cap hedge fund strategy beat the S&P 500 index by 18 percentage points per annum 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 topped the S&P 500 index by 24 percentage points in 7 months (check out a sample of our picks).

Equally as key, bullish insider trading activity is a second way to parse down the marketplace. Obviously, there are a number of reasons for an insider to get rid of shares of his or her company, but just one, very simple reason why they would initiate a purchase. Various academic studies have demonstrated the market-beating potential of this method if investors understand what to do (learn more here).

Keeping this in mind, it’s important to take a look at the recent action encompassing EnteroMedics Inc (NASDAQ:ETRM).

What does the smart money think about EnteroMedics Inc (NASDAQ:ETRM)?

At the end of the fourth quarter, a total of 6 of the hedge funds we track were bullish in this stock, a change of 20% from one quarter earlier. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings significantly.

Consequently, specific money managers were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, created the biggest position in EnteroMedics Inc (NASDAQ:ETRM). Citadel Investment Group had $0.1 million invested in the company at the end of the quarter. Joseph Edelman’s Perceptive Advisors also made a $0.1 million investment in the stock during the quarter.

How have insiders been trading EnteroMedics Inc (NASDAQ:ETRM)?

Insider buying is best served when the company in focus has experienced transactions within the past half-year. Over the latest six-month time frame, EnteroMedics Inc (NASDAQ:ETRM) has experienced 2 unique insiders buying, and zero insider sales (see the details of insider trades here).

Let’s go over hedge fund and insider activity in other stocks similar to EnteroMedics Inc (NASDAQ:ETRM). These stocks are Digirad Corporation (NASDAQ:DRAD), Vision-Sciences, Inc. (NASDAQ:VSCI), Theragenics Corporation (NYSE:TGX), Span-America Medical Systems, Inc. (NASDAQ:SPAN), and Uroplasty, Inc. (NASDAQ:UPI). This group of stocks are the members of the medical appliances & equipment industry and their market caps are similar to ETRM’s market cap.

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