Is Castlight Health Inc (CSLT) A Good Stock To Buy?

We have been waiting for this for a year and finally the third quarter ended up showing a nice bump in the performance of small-cap stocks. Both the S&P 500 and Russell 2000 were up since the end of the second quarter, but small-cap stocks outperformed the large-cap stocks by double digits. This is important for hedge funds, which are big supporters of small-cap stocks, because their investors started pulling some of their capital out due to poor recent performance. It is very likely that equity hedge funds will deliver better risk adjusted returns in the second half of this year. In this article we are going to look at how this recent market trend affected the sentiment of hedge funds towards Castlight Health Inc (NYSE:CSLT) , and what that likely means for the prospects of the company and its stock.

Castlight Health Inc (NYSE:CSLT) shares didn’t see a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 14 hedge funds’ portfolios at the end of September. At the end of this article we will also compare CSLT to other stocks including Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), Landauer, Inc. (NYSE:LDR), and Advaxis, Inc. (NASDAQ:ADXS) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

Keeping this in mind, let’s take a peek at the key action regarding Castlight Health Inc (NYSE:CSLT).

How have hedgies been trading Castlight Health Inc (NYSE:CSLT)?

Heading into the fourth quarter of 2016, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, flat from the previous quarter. By comparison, 15 hedge funds held shares or bullish call options in CSLT heading into this year. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Maverick Capital, led by Lee Ainslie, holds the largest position in Castlight Health Inc (NYSE:CSLT). Maverick Capital has a $4.9 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, one of the largest hedge funds in the world, which holds a $3.3 million position; less than 0.1% of its 13F portfolio is allocated to the company. Other professional money managers that hold long positions contain Anand Parekh’s Alyeska Investment Group, D. E. Shaw’s D E Shaw and Brian Ashford-Russell and Tim Woolley’s Polar Capital. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Because Castlight Health Inc (NYSE:CSLT) has witnessed bearish sentiment from the smart money, it’s safe to say that there exists a select few hedge funds that decided to sell off their entire stakes last quarter. It’s worth mentioning that Phill Gross and Robert Atchinson’s Adage Capital Management said goodbye to the largest investment of the 700 funds monitored by Insider Monkey, worth about $1.2 million in stock. Mark Broach’s fund, Manatuck Hill Partners, also cut its stock, about $0.8 million worth.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Castlight Health Inc (NYSE:CSLT) but similarly valued. We will take a look at Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), Landauer, Inc. (NYSE:LDR), Advaxis, Inc. (NASDAQ:ADXS), and China Yuchai International Limited (NYSE:CYD). This group of stocks’ market caps resemble CSLT’s market cap.

As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $65 million. That figure was $20 million in CSLT’s case. Advaxis, Inc. (NASDAQ:ADXS) is the most popular stock in this table. On the other hand, China Yuchai International Limited (NYSE:CYD) is the least popular one with only 6 bullish hedge fund positions. Castlight Health Inc (NYSE:CSLT) 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. In this regard ADXS might be a better candidate to consider taking a long position in.