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Healthcare Services Group, Inc. (HCSG): Hedge Funds Are Cashing Out

Last year’s fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 37.4% in 2019 (through the end of November) and outperformed the S&P 500 ETF by 9.9 percentage points. We are done processing the latest 13F filings and in this article we will study how hedge fund sentiment towards Healthcare Services Group, Inc. (NASDAQ:HCSG) changed during the first quarter.

Is Healthcare Services Group, Inc. (NASDAQ:HCSG) a healthy stock for your portfolio? Hedge funds are getting less bullish. The number of long hedge fund bets were cut by 4 recently. Our calculations also showed that HCSG isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Tom Gayner

Tom Gayner of Markel Gayner Asset Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s review the new hedge fund action regarding Healthcare Services Group, Inc. (NASDAQ:HCSG).

What does smart money think about Healthcare Services Group, Inc. (NASDAQ:HCSG)?

At Q3’s end, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in HCSG over the last 17 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

The largest stake in Healthcare Services Group, Inc. (NASDAQ:HCSG) was held by D E Shaw, which reported holding $18.2 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $14.8 million position. Other investors bullish on the company included GLG Partners, Citadel Investment Group, and Markel Gayner Asset Management. In terms of the portfolio weights assigned to each position Giverny Capital allocated the biggest weight to Healthcare Services Group, Inc. (NASDAQ:HCSG), around 0.76% of its 13F portfolio. Voce Capital is also relatively very bullish on the stock, dishing out 0.56 percent of its 13F equity portfolio to HCSG.

Seeing as Healthcare Services Group, Inc. (NASDAQ:HCSG) has faced declining sentiment from the aggregate hedge fund industry, we can see that there is a sect of hedgies who were dropping their entire stakes in the third quarter. Intriguingly, Renaissance Technologies cut the biggest position of all the hedgies watched by Insider Monkey, worth an estimated $7.6 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also dumped its stock, about $5.1 million worth. These transactions are interesting, as total hedge fund interest fell by 4 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Healthcare Services Group, Inc. (NASDAQ:HCSG) but similarly valued. These stocks are Freshpet Inc (NASDAQ:FRPT), Forward Air Corporation (NASDAQ:FWRD), Goosehead Insurance, Inc. (NASDAQ:GSHD), and Avanos Medical, Inc. (NYSE:AVNS). This group of stocks’ market valuations are similar to HCSG’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FRPT 18 126120 -6
FWRD 20 133372 2
GSHD 8 35500 1
AVNS 12 69048 1
Average 14.5 91010 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $91 million. That figure was $86 million in HCSG’s case. Forward Air Corporation (NASDAQ:FWRD) is the most popular stock in this table. On the other hand Goosehead Insurance, Inc. (NASDAQ:GSHD) is the least popular one with only 8 bullish hedge fund positions. Healthcare Services Group, Inc. (NASDAQ:HCSG) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately HCSG wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on HCSG were disappointed as the stock returned 4.4% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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