While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding eHealth, Inc. (NASDAQ:EHTH).
Is EHTH a good stock to buy now? eHealth, Inc. (NASDAQ:EHTH) investors should be aware of an increase in activity from the world’s largest hedge funds recently. eHealth, Inc. (NASDAQ:EHTH) was in 35 hedge funds’ portfolios at the end of September. The all time high for this statistic is 35. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that EHTH isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 66 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind let’s take a glance at the fresh hedge fund action encompassing eHealth, Inc. (NASDAQ:EHTH).
Do Hedge Funds Think EHTH Is A Good Stock To Buy Now?
At third quarter’s end, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards EHTH over the last 21 quarters. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
More specifically, Citadel Investment Group was the largest shareholder of eHealth, Inc. (NASDAQ:EHTH), with a stake worth $67.5 million reported as of the end of September. Trailing Citadel Investment Group was OrbiMed Advisors, which amassed a stake valued at $50.4 million. Arrowstreet Capital, Dorsal Capital Management, and Toronado Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Toronado Partners allocated the biggest weight to eHealth, Inc. (NASDAQ:EHTH), around 7.76% of its 13F portfolio. Voss Capital is also relatively very bullish on the stock, earmarking 3.38 percent of its 13F equity portfolio to EHTH.
As one would reasonably expect, key hedge funds were breaking ground themselves. Dorsal Capital Management, managed by Ryan Frick and Oliver Evans, established the most valuable position in eHealth, Inc. (NASDAQ:EHTH). Dorsal Capital Management had $39.5 million invested in the company at the end of the quarter. James E. Flynn’s Deerfield Management also made a $26.3 million investment in the stock during the quarter. The other funds with brand new EHTH positions are William Leland Edwards’s Palo Alto Investors, Zachary Miller’s Parian Global Management, and Bhagwan Jay Rao’s Integral Health Asset Management.
Let’s also examine 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 Grupo Financiero Galicia S.A. (NASDAQ:GGAL), Intra-Cellular Therapies Inc (NASDAQ:ITCI), Sunoco LP (NYSE:SUN), BankUnited Inc (NYSE:BKU), Bank of Hawaii Corporation (NYSE:BOH), Ryman Hospitality Properties, Inc. (NYSE:RHP), and American Equity Investment Life Holding Company (NYSE:AEL). This group of stocks’ market valuations resemble EHTH’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.9 hedge funds with bullish positions and the average amount invested in these stocks was $138 million. That figure was $372 million in EHTH’s case. Intra-Cellular Therapies Inc (NASDAQ:ITCI) is the most popular stock in this table. On the other hand Sunoco LP (NYSE:SUN) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks eHealth, Inc. (NASDAQ:EHTH) is more popular among hedge funds. Our overall hedge fund sentiment score for EHTH is 90. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Unfortunately EHTH wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on EHTH were disappointed as the stock returned -9.5% since the end of the third quarter (through 12/18) 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.