Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Hedge Funds Are Buying HMS Holdings Corp. (HMSY)

Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying for a while now that the current market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the fourth quarter, many investors lost money due to unpredictable events such as the sudden increase in long-term interest rates and unintended consequences of the trade war with China. Nevertheless, many of the stocks that tanked in the third quarter still sport strong fundamentals and their decline was more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to HMS Holdings Corp. (NASDAQ:HMSY) changed recently.

Is HMS Holdings Corp. (NASDAQ:HMSY) ready to rally soon? Investors who are in the know are buying. The number of long hedge fund bets went up by 5 lately. Our calculations also showed that HMSY isn’t among the 30 most popular stocks among hedge funds.

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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

D. E. Shaw

We’re going to take a look at the recent hedge fund action regarding HMS Holdings Corp. (NASDAQ:HMSY).

How are hedge funds trading HMS Holdings Corp. (NASDAQ:HMSY)?

Heading into the fourth quarter of 2018, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 45% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards HMSY over the last 13 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

No of Hedge Funds HMSY Positions

Of the funds tracked by Insider Monkey, D E Shaw, managed by D. E. Shaw, holds the most valuable position in HMS Holdings Corp. (NASDAQ:HMSY). D E Shaw has a $27.5 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by GLG Partners, led by Noam Gottesman, holding a $14.3 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism contain Ken Griffin’s Citadel Investment Group, Joel Greenblatt’s Gotham Asset Management and John Overdeck and David Siegel’s Two Sigma Advisors.

As aggregate interest increased, key hedge funds have been driving this bullishness. PDT Partners, managed by Peter Muller, created the most outsized position in HMS Holdings Corp. (NASDAQ:HMSY). PDT Partners had $1.6 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $1.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Jim Simons’s Renaissance Technologies, Jerome Pfund and Michael Sjostrom’s Sectoral Asset Management, and Bruce Kovner’s Caxton Associates LP.

Let’s check out hedge fund activity in other stocks similar to HMS Holdings Corp. (NASDAQ:HMSY). We will take a look at Ormat Technologies, Inc. (NYSE:ORA), Tech Data Corp (NASDAQ:TECD), Callon Petroleum Company (NYSE:CPE), and Switch, Inc. (NYSE:SWCH). This group of stocks’ market valuations resemble HMSY’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ORA 7 158115 -1
TECD 20 171945 3
CPE 26 341027 0
SWCH 12 161271 3
Average 16.25 208090 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $208 million. That figure was $65 million in HMSY’s case. Callon Petroleum Company (NYSE:CPE) is the most popular stock in this table. On the other hand Ormat Technologies, Inc. (NYSE:ORA) is the least popular one with only 7 bullish hedge fund positions. HMS Holdings Corp. (NASDAQ:HMSY) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard CPE might be a better candidate to consider a long position.

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

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.