Should You Add Halyard Health Inc (HYH) To Your Portfolio?

Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

One stock that registered an increase in popularity among smart money investors last quarter is Halyard Health Inc (NYSE:HYH). At the end of September, the company was included in the 13F portfolios of 20 funds tracked by Insider Monkey at the end of September, compared to 14 funds at the end of the previous quarter. At the end of this article we will also compare HYH to other stocks including HubSpot Inc (NYSE:HUBS), Proto Labs Inc (NYSE:PRLB), and Exponent, Inc. (NASDAQ:EXPO) 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 analyze the recent action surrounding Halyard Health Inc (NYSE:HYH).

What does the smart money think about Halyard Health Inc (NYSE:HYH)?

At the end of September, 20 funds tracked by Insider Monkey held long positions in Halyard Health, up by 43% from the end of the previous quarter. Below, you can check out the change in hedge fund sentiment towards HYH over the last five quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Cove Street Capital, led by Jeffrey Bronchick, holds the biggest position in Halyard Health Inc (NYSE:HYH). Cove Street Capital has a $25.7 million position in the stock, comprising 2.8% of its 13F portfolio. Sitting at the No. 2 spot is Gotham Asset Management, led by Joel Greenblatt, which holds a $14.3 million position; 0.2% of its 13F portfolio is allocated to the stock. Some other members of the smart money with similar optimism consist of Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Israel Englander’s Millennium Management, and David E. Shaw’s D E Shaw. 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.

With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. Cove Street Capital, led by Jeffrey Bronchick, established the largest position in Halyard Health Inc (NYSE:HYH). Cove Street Capital had $25.7 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $10.5 million investment in the stock during the quarter. The other funds with brand new HYH positions are Glenn Russell Dubin’s Highbridge Capital Management, David Costen Haley’s HBK Investments, and John Overdeck and David Siegel’s Two Sigma Advisors.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Halyard Health Inc (NYSE:HYH) but similarly valued. These stocks are HubSpot Inc (NYSE:HUBS), Proto Labs Inc (NYSE:PRLB), Exponent, Inc. (NASDAQ:EXPO), and Children’s Place Retail Stores, Inc. (NASDAQ:PLCE). This group of stocks’ market values are closest to HYH’s market value.

As you can see these stocks had an average of 16 funds with bullish positions and the average amount invested in these stocks was $127 million, compared to $89 million in HYH’s case. HubSpot Inc (NYSE:HUBS) is the most popular stock in this table. On the other hand Exponent, Inc. (NASDAQ:EXPO) is the least popular one with only eight investors reporting long positions. Halyard Health Inc (NYSE:HYH) 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 HubSpot Inc (NYSE:HUBS) might be a better candidate to consider taking a long position in.

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Disclosure: None