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Hedge Funds Have Never Been This Bullish On HealthStream, Inc. (HSTM)

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of HealthStream, Inc. (NASDAQ:HSTM).

Is HealthStream, Inc. (NASDAQ:HSTM) a healthy stock for your portfolio? Hedge funds are getting more bullish. The number of bullish hedge fund positions went up by 4 lately. Our calculations also showed that HSTM isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 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.

Bruce Kovner, Caxton Associates LP

Bruce Kovner of Caxton Associates LP

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. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to review the new hedge fund action surrounding HealthStream, Inc. (NASDAQ:HSTM).

How are hedge funds trading HealthStream, Inc. (NASDAQ:HSTM)?

Heading into the second quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 31% from the fourth quarter of 2019. By comparison, 14 hedge funds held shares or bullish call options in HSTM a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

The largest stake in HealthStream, Inc. (NASDAQ:HSTM) was held by Renaissance Technologies, which reported holding $16.2 million worth of stock at the end of September. It was followed by D E Shaw with a $8.8 million position. Other investors bullish on the company included AQR Capital Management, Marshall Wace LLP, and McKinley Capital Management. In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to HealthStream, Inc. (NASDAQ:HSTM), around 0.93% of its 13F portfolio. McKinley Capital Management is also relatively very bullish on the stock, designating 0.29 percent of its 13F equity portfolio to HSTM.

Consequently, specific money managers have jumped into HealthStream, Inc. (NASDAQ:HSTM) headfirst. Millennium Management, managed by Israel Englander, initiated the most valuable position in HealthStream, Inc. (NASDAQ:HSTM). Millennium Management had $2.9 million invested in the company at the end of the quarter. Greg Eisner’s Engineers Gate Manager also made a $0.5 million investment in the stock during the quarter. The following funds were also among the new HSTM investors: Bruce Kovner’s Caxton Associates LP and Paul Tudor Jones’s Tudor Investment Corp.

Let’s check out hedge fund activity in other stocks similar to HealthStream, Inc. (NASDAQ:HSTM). These stocks are K12 Inc. (NYSE:LRN), Unisys Corporation (NYSE:UIS), Yunji Inc. (NASDAQ:YJ), and Tactile Systems Technology, Inc. (NASDAQ:TCMD). This group of stocks’ market values are similar to HSTM’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LRN 20 107274 5
UIS 16 74553 -2
YJ 4 3255 -2
TCMD 13 38706 1
Average 13.25 55947 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $56 million. That figure was $47 million in HSTM’s case. K12 Inc. (NYSE:LRN) is the most popular stock in this table. On the other hand Yunji Inc. (NASDAQ:YJ) is the least popular one with only 4 bullish hedge fund positions. HealthStream, Inc. (NASDAQ:HSTM) 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 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 13.4% in 2020 through June 22nd but beat the market by 15.9 percentage points. Unfortunately HSTM wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on HSTM were disappointed as the stock returned -9.1% 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.