Hedge fund managers like David Einhorn, Dan Loeb, and Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Natus Medical Inc (NASDAQ:BABY).
Natus Medical Inc (NASDAQ:BABY) investors should be aware of a decrease in activity from the world’s largest hedge funds lately. BABY was in 19 hedge funds’ portfolios on September 30, down by 1 during Q3. At the end of this article we will also compare BABY to other stocks including Gogo Inc (NASDAQ:GOGO), Olin Corporation (NYSE:OLN), and Shutterfly, Inc. (NASDAQ:SFLY) to get a better sense of its popularity.
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In today’s marketplace there are plenty of metrics market participants use to evaluate stocks. Some of the most underrated metrics are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the top picks of the elite investment managers can outclass their index-focused peers by a solid amount (see the details here).
Now, let’s check out the latest action surrounding Natus Medical Inc (NASDAQ:BABY).
What does the smart money think about Natus Medical Inc (NASDAQ:BABY)?
At the end of the third quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 5% dip from the previous quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their stakes substantially (or had already accumulated large positions).
Of the funds tracked by Insider Monkey, Fisher Asset Management, managed by Ken Fisher, holds the biggest position in Natus Medical Inc (NASDAQ:BABY). Fisher Asset Management has a $23.7 million position in the stock, comprising less than 0.1% of its 13F portfolio. Coming in second is Gotham Asset Management, led by Joel Greenblatt, holding a $13.1 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that hold long positions consist of Andrew Sandler’s Sandler Capital Management, Ed Beddow and William Tichy’s Beddow Capital Management, and Brian C. Freckmann’s Lyon Street Capital.
Judging by the fact that Natus Medical Inc (NASDAQ:BABY) has experienced declining sentiment from the aggregate hedge fund industry, it’s safe to say that there is a sect of hedge funds that decided to sell off their entire stakes in the third quarter. Intriguingly, Millennium Management Subsidiary’s Decade Capital Management said goodbye to the biggest stake of all the hedgies followed by Insider Monkey, totaling about $3.6 million in stock, and Neil Chriss’ Hutchin Hill Capital was right behind this move, as the fund sold off about $1 million worth of shares. These transactions are interesting, as aggregate hedge fund interest fell by 1 fund in the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Natus Medical Inc (NASDAQ:BABY) but similarly valued. These stocks are Gogo Inc (NASDAQ:GOGO), Olin Corporation (NYSE:OLN), Shutterfly, Inc. (NASDAQ:SFLY), and Talen Energy Corp (NYSE:TLN). All of these stocks’ market caps are similar to BABY’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GOGO | 18 | 166501 | 2 |
| OLN | 35 | 485546 | 11 |
| SFLY | 27 | 413855 | 0 |
| TLN | 20 | 89283 | 1 |
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $289 million. That figure was $136 million in BABY’s case. Olin Corporation (NYSE:OLN) is the most popular stock in this table. On the other hand Gogo Inc (NASDAQ:GOGO) is the least popular one with only 18 bullish hedge fund positions. Natus Medical Inc (NASDAQ:BABY) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard OLN might be a better candidate to consider a long position in.
