Is Electromed (ELMD) A Good Stock To Buy Now?

At Insider Monkey, we pore over the filings of nearly 817 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not Electromed, Inc. (NYSE:ELMD) makes for a good investment right now.

Is Electromed (ELMD) a good stock to buy now? ELMD shareholders have witnessed an increase in activity from the world’s largest hedge funds recently. Electromed, Inc. (NYSE:ELMD) was in 6 hedge funds’ portfolios at the end of September. The all time high for this statistics is 4. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 4 hedge funds in our database with ELMD positions at the end of the second quarter. Our calculations also showed that ELMD 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.

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 S&P 500 ETFs by 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.

Roger Ibbotson of Zebra Capital Management

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. Now let’s analyze the new hedge fund action regarding Electromed, Inc. (NYSE:ELMD).

What have hedge funds been doing with Electromed, Inc. (NYSE:ELMD)?

At the end of September, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 50% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ELMD over the last 21 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Electromed, Inc. (NYSE:ELMD) was held by Renaissance Technologies, which reported holding $2.9 million worth of stock at the end of September. It was followed by AQR Capital Management with a $1.2 million position. Other investors bullish on the company included Arrowstreet Capital, Zebra Capital Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to Electromed, Inc. (NYSE:ELMD), around 0.51% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, designating 0.0029 percent of its 13F equity portfolio to ELMD.

As one would reasonably expect, specific money managers have jumped into Electromed, Inc. (NYSE:ELMD) headfirst. AQR Capital Management, managed by Cliff Asness, assembled the largest position in Electromed, Inc. (NYSE:ELMD). AQR Capital Management had $1.2 million invested in the company at the end of the quarter. Roger Ibbotson’s Zebra Capital Management also initiated a $0.3 million position during the quarter. The only other fund with a brand new ELMD position is Noam Gottesman’s GLG Partners.

Let’s now review hedge fund activity in other stocks similar to Electromed, Inc. (NYSE:ELMD). We will take a look at Peoples Bancorp of North Carolina, Inc. (NASDAQ:PEBK), PAVmed Inc. (NASDAQ:PAVM), Beyond Air, Inc. (NASDAQ:XAIR), Dynagas LNG Partners LP (NYSE:DLNG), 22nd Century Group, Inc (NYSE:XXII), Provident Financial Holdings, Inc. (NASDAQ:PROV), and Townsquare Media Inc (NYSE:TSQ). This group of stocks’ market caps match ELMD’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PEBK 2 3804 -1
PAVM 5 1137 2
XAIR 1 2652 -3
DLNG 1 153 0
XXII 4 546 -4
PROV 1 4802 0
TSQ 6 19036 0
Average 2.9 4590 -0.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 2.9 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $6 million in ELMD’s case. Townsquare Media Inc (NYSE:TSQ) is the most popular stock in this table. On the other hand Beyond Air, Inc. (NASDAQ:XAIR) is the least popular one with only 1 bullish hedge fund positions. Electromed, Inc. (NYSE:ELMD) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ELMD is 87. 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. 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and beat the market again by 16.1 percentage points. Unfortunately ELMD wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ELMD were disappointed as the stock returned -5.2% since the end of September (through 11/27) 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.

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