Do Hedge Funds and Insiders Love EnteroMedics Inc (ETRM)?

Is EnteroMedics Inc (NASDAQ:ETRM) a buy right now? Investors who are in the know are getting more bullish. The number of bullish hedge fund positions went up by 1 lately.

EnteroMedics Inc (NASDAQ:ETRM)

According to most stock holders, hedge funds are assumed to be unimportant, outdated financial vehicles of years past. While there are over 8000 funds with their doors open today, we choose to focus on the top tier of this club, close to 450 funds. It is estimated that this group controls the lion’s share of all hedge funds’ total capital, and by monitoring their top investments, we have unsheathed a number of investment strategies that have historically outpaced the broader indices. Our small-cap hedge fund strategy beat the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outperformed the S&P 500 index by 24 percentage points in 7 months (explore the details and some picks here).

Just as key, optimistic insider trading sentiment is another way to parse down the investments you’re interested in. There are many reasons for an executive to cut shares of his or her company, but only one, very simple reason why they would buy. Several empirical studies have demonstrated the useful potential of this method if investors understand where to look (learn more here).

Now, let’s take a gander at the recent action surrounding EnteroMedics Inc (NASDAQ:ETRM).

How are hedge funds trading EnteroMedics Inc (NASDAQ:ETRM)?

Heading into 2013, a total of 6 of the hedge funds we track were long in this stock, a change of 20% from one quarter earlier. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were increasing their stakes meaningfully.

As industrywide interest jumped, key hedge funds were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, created the largest position in EnteroMedics Inc (NASDAQ:ETRM). Citadel Investment Group had 0.1 million invested in the company at the end of the quarter. Joseph Edelman’s Perceptive Advisors also made a $0 million investment in the stock during the quarter.

How are insiders trading EnteroMedics Inc (NASDAQ:ETRM)?

Bullish insider trading is particularly usable when the primary stock in question has experienced transactions within the past half-year. Over the latest half-year time period, EnteroMedics Inc (NASDAQ:ETRM) has seen 2 unique insiders buying, and zero insider sales (see the details of insider trades here).

Let’s also review hedge fund and insider activity in other stocks similar to EnteroMedics Inc (NASDAQ:ETRM). These stocks are Digirad Corporation (NASDAQ:DRAD), Vision-Sciences, Inc. (NASDAQ:VSCI), Theragenics Corporation (NYSE:TGX), Span-America Medical Systems, Inc. (NASDAQ:SPAN), and Uroplasty, Inc. (NASDAQ:UPI). This group of stocks are the members of the medical appliances & equipment industry and their market caps are closest to ETRM’s market cap.