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eHealth, Inc. (EHTH) Fell Out Of Favor With Hedge Funds

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.

Is eHealth, Inc. (NASDAQ:EHTH) an exceptional investment now? Investors who are in the know were in a bearish mood. The number of long hedge fund positions fell by 5 recently. eHealth, Inc. (NASDAQ:EHTH) was in 30 hedge funds’ portfolios at the end of June. The all time high for this statistics is 35. Our calculations also showed that EHTH isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 35 hedge funds in our database with EHTH positions at the end of the first quarter.

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 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Wil Harkey Nantahala Capital

Wilmot B. Harkey of Nantahala Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. With all of this in mind we’re going to analyze the latest hedge fund action regarding eHealth, Inc. (NASDAQ:EHTH).

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

Heading into the third quarter of 2020, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards EHTH over the last 20 quarters. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Ken Griffin’s Citadel Investment Group has the biggest position in eHealth, Inc. (NASDAQ:EHTH), worth close to $83.6 million, accounting for less than 0.1%% of its total 13F portfolio. Coming in second is OrbiMed Advisors, managed by Samuel Isaly, which holds a $62.7 million position; the fund has 0.9% of its 13F portfolio invested in the stock. Remaining peers that hold long positions encompass Brian Ashford-Russell and Tim Woolley’s Polar Capital, Stephen Perkins’s Toronado Partners and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Toronado Partners allocated the biggest weight to eHealth, Inc. (NASDAQ:EHTH), around 11.86% of its 13F portfolio. Harspring Capital Management is also relatively very bullish on the stock, setting aside 2.1 percent of its 13F equity portfolio to EHTH.

Judging by the fact that eHealth, Inc. (NASDAQ:EHTH) has witnessed declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of fund managers who were dropping their positions entirely heading into Q3. Intriguingly, Daniel Patrick Gibson’s Sylebra Capital Management dumped the biggest position of all the hedgies tracked by Insider Monkey, comprising about $50.4 million in stock, and Richard Driehaus’s Driehaus Capital was right behind this move, as the fund sold off about $29.9 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 5 funds heading into Q3.

Let’s now review 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 Wintrust Financial Corporation (NASDAQ:WTFC), Trinity Industries, Inc. (NYSE:TRN), Insperity Inc (NYSE:NSP), Taylor Morrison Home Corp (NYSE:TMHC), UMB Financial Corporation (NASDAQ:UMBF), Crocs, Inc. (NASDAQ:CROX), and Ovintiv Inc. (NYSE:OVV). All of these stocks’ market caps match EHTH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WTFC 23 141490 -4
TRN 25 824807 7
NSP 29 280537 0
TMHC 33 370179 5
UMBF 15 69356 0
CROX 37 634166 12
OVV 16 99529 -3
Average 25.4 345723 2.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.4 hedge funds with bullish positions and the average amount invested in these stocks was $346 million. That figure was $362 million in EHTH’s case. Crocs, Inc. (NASDAQ:CROX) is the most popular stock in this table. On the other hand UMB Financial Corporation (NASDAQ:UMBF) is the least popular one with only 15 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. Our overall hedge fund sentiment score for EHTH is 59.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 23.8% in 2020 through September 14th and beat the market by 17.6 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 -23% 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.