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Merge Healthcare Inc. (MRGE): Insiders Are Buying, Should You?

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Merge Healthcare Inc. (NASDAQ:MRGE) was in 10 hedge funds’ portfolio at the end of the fourth quarter of 2012. MRGE shareholders have witnessed a decrease in enthusiasm from smart money of late. There were 10 hedge funds in our database with MRGE positions at the end of the previous quarter.

To most traders, hedge funds are assumed to be slow, outdated financial vehicles of the past. While there are over 8000 funds trading at present, we at Insider Monkey hone in on the aristocrats of this club, close to 450 funds. Most estimates calculate that this group has its hands on the lion’s share of the hedge fund industry’s total asset base, and by watching their highest performing picks, we have identified a number of investment strategies that have historically beaten Mr. Market. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points per 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 outclassed the S&P 500 index by 24 percentage points in 7 months (see all of our picks from August).

Equally as beneficial, optimistic insider trading sentiment is a second way to break down the stock market universe. There are a variety of motivations for an insider to get rid of shares of his or her company, but just one, very clear reason why they would buy. Many academic studies have demonstrated the market-beating potential of this strategy if “monkeys” understand where to look (learn more here).

With all of this in mind, it’s important to take a look at the latest action surrounding Merge Healthcare Inc. (NASDAQ:MRGE).

What does the smart money think about Merge Healthcare Inc. (NASDAQ:MRGE)?

In preparation for this year, a total of 10 of the hedge funds we track were long in this stock, a change of 0% from one quarter earlier. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes significantly.

Of the funds we track, Carl Tiedemann and Michael Tiedemann’s TIG Advisors had the largest position in Merge Healthcare Inc. (NASDAQ:MRGE), worth close to $5.6 million, accounting for 1% of its total 13F portfolio. Sitting at the No. 2 spot is Visium Asset Management, managed by Jacob Gottlieb, which held a $1.1 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other peers with similar optimism include SAC Subsidiary’s CR Intrinsic Investors, Israel Englander’s Millennium Management and Joel Greenblatt’s Gotham Asset Management.

Merge Healthcare Inc. (NASDAQ:MRGE)Since Merge Healthcare Inc. (NASDAQ:MRGE) has experienced a declination in interest from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of money managers who were dropping their entire stakes at the end of the year. It’s worth mentioning that John Burbank’s Passport Capital said goodbye to the largest stake of the 450+ funds we track, comprising close to $1 million in stock., and Richard Driehaus of Driehaus Capital was right behind this move, as the fund sold off about $0.5 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

What have insiders been doing with Merge Healthcare Inc. (NASDAQ:MRGE)?

Insider trading activity, especially when it’s bullish, is at its handiest when the company in focus has seen transactions within the past 180 days. Over the latest 180-day time period, Merge Healthcare Inc. (NASDAQ:MRGE) has seen 2 unique insiders buying, and zero insider sales (see the details of insider trades here).

Let’s also examine hedge fund and insider activity in other stocks similar to Merge Healthcare Inc. (NASDAQ:MRGE). These stocks are WebMD Health Corp. (NASDAQ:WBMD), MedAssets, Inc. (NASDAQ:MDAS), Quality Systems, Inc. (NASDAQ:QSII), Streamline Health Solutions Inc. (NASDAQ:STRM), and Computer Programs & Systems, Inc. (NASDAQ:CPSI). All of these stocks are in the healthcare information services industry and their market caps resemble MRGE’s market cap.

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