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Did Hedge Funds Drop The Ball On eHealth, Inc. (EHTH) ?

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like eHealth, Inc. (NASDAQ:EHTH).

eHealth, Inc. (NASDAQ:EHTH) has seen a decrease in hedge fund sentiment lately. EHTH was in 21 hedge funds’ portfolios at the end of the third quarter of 2019. There were 26 hedge funds in our database with EHTH positions at the end of the previous quarter. Our calculations also showed that EHTH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Samuel Isaly Orbimed Advisors

Samuel Isaly of OrbiMed Advisors

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s go over the key hedge fund action surrounding eHealth, Inc. (NASDAQ:EHTH).

How have hedgies been trading eHealth, Inc. (NASDAQ:EHTH)?

Heading into the fourth quarter of 2019, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from the previous quarter. The graph below displays the number of hedge funds with bullish position in EHTH over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, OrbiMed Advisors was the largest shareholder of eHealth, Inc. (NASDAQ:EHTH), with a stake worth $74.6 million reported as of the end of September. Trailing OrbiMed Advisors was Citadel Investment Group, which amassed a stake valued at $43.6 million. PAR Capital Management, Sylebra Capital Management, and Driehaus 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 Lyon Street Capital allocated the biggest weight to eHealth, Inc. (NASDAQ:EHTH), around 2.56% of its 13F portfolio. Atika Capital is also relatively very bullish on the stock, dishing out 1.9 percent of its 13F equity portfolio to EHTH.

Due to the fact that eHealth, Inc. (NASDAQ:EHTH) has witnessed a decline in interest from the smart money, it’s safe to say that there exists a select few money managers that slashed their positions entirely heading into Q4. Intriguingly, Jeremy Green’s Redmile Group dropped the biggest position of the “upper crust” of funds followed by Insider Monkey, worth close to $76.5 million in stock. Renaissance Technologies, also cut its stock, about $24.3 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 5 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as eHealth, Inc. (NASDAQ:EHTH) but similarly valued. We will take a look at The Michaels Companies Inc (NASDAQ:MIK), Peabody Energy Corporation (NYSE:BTU), SFL Corporation Ltd. (NYSE:SFL), and Groupon Inc (NASDAQ:GRPN). All of these stocks’ market caps resemble EHTH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MIK 21 76221 -5
BTU 31 725364 0
SFL 12 61459 1
GRPN 21 274180 -3
Average 21.25 284306 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $284 million. That figure was $278 million in EHTH’s case. Peabody Energy Corporation (NYSE:BTU) is the most popular stock in this table. On the other hand SFL Corporation Ltd. (NYSE:SFL) is the least popular one with only 12 bullish hedge fund positions. eHealth, Inc. (NASDAQ:EHTH) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on EHTH as the stock returned 38.1% during the first two months of Q4 and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.

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