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Did Hedge Funds Make The Right Call On Healthequity Inc (HQY)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Healthequity Inc (NASDAQ:HQY) based on that data and determine whether they were really smart about the stock.

Is Healthequity Inc (NASDAQ:HQY) undervalued? Hedge funds were taking a bearish view. The number of bullish hedge fund bets retreated by 4 recently. Our calculations also showed that HQY 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). HQY was in 19 hedge funds’ portfolios at the end of March. There were 23 hedge funds in our database with HQY holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

If you’d ask most market participants, hedge funds are viewed as underperforming, old investment tools of yesteryear. While there are over 8000 funds in operation at present, We hone in on the crème de la crème of this club, about 850 funds. Most estimates calculate that this group of people watch over the majority of the hedge fund industry’s total capital, and by tracking their best equity investments, Insider Monkey has spotted a number of investment strategies that have historically outrun the market. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

GOTHAM ASSET MANAGEMENT

Joel Greenblatt of Gotham Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we’re going to take a look at the key hedge fund action encompassing Healthequity Inc (NASDAQ:HQY).

How are hedge funds trading Healthequity Inc (NASDAQ:HQY)?

At Q1’s end, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the previous quarter. By comparison, 22 hedge funds held shares or bullish call options in HQY a year ago. With hedge funds’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

Is HQY A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Echo Street Capital Management, managed by Greg Poole, holds the largest position in Healthequity Inc (NASDAQ:HQY). Echo Street Capital Management has a $44.4 million position in the stock, comprising 1% of its 13F portfolio. The second largest stake is held by Rock Springs Capital Management, led by Kris Jenner, Gordon Bussard, Graham McPhail, holding a $15.4 million position; the fund has 0.6% of its 13F portfolio invested in the stock. Some other peers that are bullish encompass Ken Griffin’s Citadel Investment Group, Israel Englander’s Millennium Management and Matthew Hulsizer’s PEAK6 Capital Management. In terms of the portfolio weights assigned to each position Echo Street Capital Management allocated the biggest weight to Healthequity Inc (NASDAQ:HQY), around 0.95% of its 13F portfolio. Rock Springs Capital Management is also relatively very bullish on the stock, designating 0.64 percent of its 13F equity portfolio to HQY.

Due to the fact that Healthequity Inc (NASDAQ:HQY) has witnessed a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of fund managers that slashed their entire stakes in the first quarter. Intriguingly, Alexander Charles McAree’s Red Cedar Management dropped the largest stake of the “upper crust” of funds watched by Insider Monkey, valued at an estimated $8.9 million in stock, and Renaissance Technologies was right behind this move, as the fund cut about $6.7 million worth. These moves are important to note, as total hedge fund interest was cut by 4 funds in the first quarter.

Let’s now review hedge fund activity in other stocks similar to Healthequity Inc (NASDAQ:HQY). We will take a look at BridgeBio Pharma, Inc. (NASDAQ:BBIO), eHealth, Inc. (NASDAQ:EHTH), Tapestry, Inc. (NYSE:TPR), and AGCO Corporation (NYSE:AGCO). This group of stocks’ market values resemble HQY’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BBIO 12 1212843 1
EHTH 35 411257 9
TPR 37 351229 -3
AGCO 19 125602 -9
Average 25.75 525233 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $525 million. That figure was $96 million in HQY’s case. Tapestry, Inc. (NYSE:TPR) is the most popular stock in this table. On the other hand BridgeBio Pharma, Inc. (NASDAQ:BBIO) is the least popular one with only 12 bullish hedge fund positions. Healthequity Inc (NASDAQ:HQY) 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. 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 18.6% in 2020 through July 27th and surpassed the market by 17.1 percentage points. Unfortunately HQY wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); HQY investors were disappointed as the stock returned 7.3% since Q1 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 most of these stocks already outperformed the market in 2020.

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