According to a recent filing with the Securities and Exchange Commission, James E. Flynn‘s Deerfield Management has acquired about 2.47 million shares of Healthways, Inc. (NASDAQ:HWAY) through its affiliated funds. The holding represents about 6.91% of the $433 million healthcare company’s outstanding shares. Healthways, Inc. (NASDAQ:HWAY) is involved in engaging customer populations in healthy activities that prolong their life and also lessen their financial burden on their families and society, in terms of medical expenses. A study by the company reveals that these health risk reduction efforts can lead to an estimated ten-year savings exceeding $2 trillion. Healthways, Inc. (NASDAQ:HWAY)’s clients include corporations and health insurance companies, among other. So far this year Healthways, Inc. (NASDAQ:HWAY)’s stock has nose-dived by almost 40%. In comparison, the medical industry has appreciated by more than 13% during the same period. The latest slump in the stock price came after a sharp cut in the guidance by the company’s management this month. Revenue expectations for the year were lowered to the range of between $770 million to $785 million from a $800 million to $825 million range indicated previously. This has resulted in a $20 million impact on the company’s EBIDTA at the midpoint. The EBIDTA margin is expected to fall in the 8% to 8.5% range. The underlying factor behind these revisions was the slower than expected development in the Ornish Reversal Program and Blue Zones projects.
Flynn isn’t the only one bullish on the company. Healthways, Inc. (NASDAQ:HWAY) was in 23 hedge funds’ portfolios, who had invested a total of $285.73 million in the provider of population health management solutions at the end of March. Healthways investors should be aware of an increase in enthusiasm from smart money recently. There were 17 hedge funds in our database with holdings that had a total value of $233.78 million at the end of the previous quarter. Thus there was a notable increase in investment from the smart money during the first quarter, considering shares declined slightly during the period.
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Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return more than 145% over the last 34 months and outperformed the S&P 500 Index by 85 percentage points (see the details here).
INSIDER INFO
Keeping this in mind, let’s go over the key action surrounding Healthways, Inc. (NASDAQ:HWAY).
How have hedgies been trading Healthways, Inc. (NASDAQ:HWAY)?
According to hedge fund experts at Insider Monkey, Conan Laughlin‘s North Tide Capital had the number one position in Healthways, Inc. (NASDAQ:HWAY), worth close to $75.8 million, amounting to 5.7% of its total 13F portfolio. Coming in second is Stelliam Investment Management, led by Ross Margolies, holding a $40.7 million position; the fund has 0.9% of its 13F portfolio invested in the stock. Some other peers that hold long positions encompass Steve Cohen‘s Point72 Asset Management, Mitchell Blutt’s Consonance Capital Management, and Israel Englander’s Millennium Management.
Consequently, key hedge funds have been driving this bullishness. Pine River Capital Management, managed by Brian Taylor, established the most outsized position in Healthways, Inc. (NASDAQ:HWAY). Pine River Capital Management had $10.2 million invested in the company at the end of the quarter. Peter Muller’s PDT Partners also initiated an $876,000 position during the quarter. The following funds were also among the new Healthways investors: Matthew Tewksbury’s Stevens Capital Management, Paul Tudor Jones’ Tudor Investment Corp, and Mike Vranos’ Ellington.
The company still has a particularly high forward earnings multiple of 31.29. Despite the bullish attitude from the hedge funds (and the big second quarter slide of the shares since then), we would advise investors to let the stock slide more before making a play on the company.
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