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Did Hedge Funds Make The Right Call On HealthStream, Inc. (HSTM) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtHealthStream, Inc. (NASDAQ:HSTM) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

HealthStream, Inc. (NASDAQ:HSTM) was in 17 hedge funds’ portfolios at the end of March. HSTM investors should be aware of an increase in hedge fund interest in recent months. There were 13 hedge funds in our database with HSTM positions at the end of the previous quarter. Our calculations also showed that HSTM 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

TUDOR INVESTMENT CORP

Paul Tudor Jones of Tudor Investment Corp

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America 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 let’s take a glance at the fresh hedge fund action regarding HealthStream, Inc. (NASDAQ:HSTM).

How have hedgies been trading HealthStream, Inc. (NASDAQ:HSTM)?

At Q1’s end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 31% from one quarter earlier. On the other hand, there were a total of 14 hedge funds with a bullish position in HSTM a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is HSTM A Good Stock To Buy?

Among these funds, Renaissance Technologies held the most valuable stake in HealthStream, Inc. (NASDAQ:HSTM), which was worth $16.2 million at the end of the third quarter. On the second spot was D E Shaw which amassed $8.8 million worth of shares. AQR Capital Management, Marshall Wace LLP, and McKinley Capital Management 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 Zebra Capital Management allocated the biggest weight to HealthStream, Inc. (NASDAQ:HSTM), around 0.93% of its 13F portfolio. McKinley Capital Management is also relatively very bullish on the stock, earmarking 0.29 percent of its 13F equity portfolio to HSTM.

As industrywide interest jumped, key money managers were breaking ground themselves. Millennium Management, managed by Israel Englander, established the most outsized position in HealthStream, Inc. (NASDAQ:HSTM). Millennium Management had $2.9 million invested in the company at the end of the quarter. Greg Eisner’s Engineers Gate Manager also made a $0.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Bruce Kovner’s Caxton Associates LP and Paul Tudor Jones’s Tudor Investment Corp.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as HealthStream, Inc. (NASDAQ:HSTM) but similarly valued. These stocks are K12 Inc. (NYSE:LRN), Unisys Corporation (NYSE:UIS), Yunji Inc. (NASDAQ:YJ), and Tactile Systems Technology, Inc. (NASDAQ:TCMD). This group of stocks’ market valuations match HSTM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LRN 20 107274 5
UIS 16 74553 -2
YJ 4 3255 -2
TCMD 13 38706 1
Average 13.25 55947 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $56 million. That figure was $47 million in HSTM’s case. K12 Inc. (NYSE:LRN) is the most popular stock in this table. On the other hand Yunji Inc. (NASDAQ:YJ) is the least popular one with only 4 bullish hedge fund positions. HealthStream, Inc. (NASDAQ:HSTM) 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 18.6% in 2020 through July 27th but beat the market by 17.1 percentage points. Unfortunately HSTM wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on HSTM were disappointed as the stock returned -10.7% 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.