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Did Hedge Funds Make The Right Call On eHealth, Inc. (EHTH) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding eHealth, Inc. (NASDAQ:EHTH) and determine whether hedge funds had an edge regarding this stock.

eHealth, Inc. (NASDAQ:EHTH) has seen an increase in support from the world’s most elite money managers recently. EHTH was in 35 hedge funds’ portfolios at the end of March. 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 Q1 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 58 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.

Joseph Edelman of Perceptive Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to view the fresh hedge fund action encompassing eHealth, Inc. (NASDAQ:EHTH).

What does smart money think about eHealth, Inc. (NASDAQ:EHTH)?

At Q1’s end, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 35% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in EHTH over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is EHTH A Good Stock To Buy?

More specifically, Citadel Investment Group was the largest shareholder of eHealth, Inc. (NASDAQ:EHTH), with a stake worth $100.9 million reported as of the end of September. Trailing Citadel Investment Group was OrbiMed Advisors, which amassed a stake valued at $89.9 million. Sylebra Capital Management, Toronado Partners, 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 Toronado Partners allocated the biggest weight to eHealth, Inc. (NASDAQ:EHTH), around 12.7% of its 13F portfolio. Pinz Capital is also relatively very bullish on the stock, dishing out 6.93 percent of its 13F equity portfolio to EHTH.

As aggregate interest increased, specific money managers have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the biggest position in eHealth, Inc. (NASDAQ:EHTH). Arrowstreet Capital had $10.1 million invested in the company at the end of the quarter. Mark Coe’s Intrinsic Edge Capital also made a $7.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Ken Grossman and Glen Schneider’s SG Capital Management, Noam Gottesman’s GLG Partners, and Justin John Ferayorni’s Tamarack Capital Management.

Let’s go over 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 Tapestry, Inc. (NYSE:TPR), AGCO Corporation (NYSE:AGCO), TerraForm Power Inc (NASDAQ:TERP), and Graphic Packaging Holding Company (NYSE:GPK). This group of stocks’ market caps match EHTH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TPR 37 351229 -3
AGCO 19 125602 -9
TERP 17 217631 2
GPK 33 340462 -6
Average 26.5 258731 -4

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $259 million. That figure was $411 million in EHTH’s case. Tapestry, Inc. (NYSE:TPR) is the most popular stock in this table. On the other hand TerraForm Power Inc (NASDAQ:TERP) is the least popular one with only 17 bullish hedge fund positions. eHealth, Inc. (NASDAQ:EHTH) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 gained 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately EHTH wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on EHTH were disappointed as the stock returned -30.2% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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