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Were Hedge Funds Right About Ditching Cardiovascular Systems Inc (CSII)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Cardiovascular Systems Inc (NASDAQ:CSII) based on that data and determine whether they were really smart about the stock.

Is Cardiovascular Systems Inc (NASDAQ:CSII) a buy right now? Prominent investors were becoming less hopeful. The number of bullish hedge fund bets retreated by 4 recently. Our calculations also showed that CSII 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). CSII was in 12 hedge funds’ portfolios at the end of the first quarter of 2020. There were 16 hedge funds in our database with CSII holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the 21st century investor’s toolkit there are numerous gauges investors can use to size up their stock investments. Some of the most useful gauges are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the elite investment managers can outperform the S&P 500 by a solid amount (see the details here).

Wall Street Bull

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s check out the fresh hedge fund action regarding Cardiovascular Systems Inc (NASDAQ:CSII).

How are hedge funds trading Cardiovascular Systems Inc (NASDAQ:CSII)?

Heading into the second quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in CSII over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of Cardiovascular Systems Inc (NASDAQ:CSII), with a stake worth $58.6 million reported as of the end of September. Trailing Renaissance Technologies was Balyasny Asset Management, which amassed a stake valued at $8.1 million. Sectoral Asset Management, GAMCO Investors, and Two Sigma Advisors 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 Sectoral Asset Management allocated the biggest weight to Cardiovascular Systems Inc (NASDAQ:CSII), around 1.1% of its 13F portfolio. DAFNA Capital Management is also relatively very bullish on the stock, setting aside 0.75 percent of its 13F equity portfolio to CSII.

Due to the fact that Cardiovascular Systems Inc (NASDAQ:CSII) has faced falling interest from hedge fund managers, it’s easy to see that there was a specific group of hedge funds that decided to sell off their entire stakes by the end of the first quarter. Interestingly, Christopher James’s Partner Fund Management said goodbye to the biggest investment of all the hedgies watched by Insider Monkey, totaling an estimated $13.3 million in stock, and Noam Gottesman’s GLG Partners was right behind this move, as the fund dumped about $4.4 million worth. These transactions are interesting, as total hedge fund interest fell by 4 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks similar to Cardiovascular Systems Inc (NASDAQ:CSII). We will take a look at USANA Health Sciences, Inc. (NYSE:USNA), Amerisafe, Inc. (NASDAQ:AMSF), Zealand Pharma A/S (NASDAQ:ZEAL), and Luminex Corporation (NASDAQ:LMNX). All of these stocks’ market caps resemble CSII’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
USNA 13 133207 1
AMSF 9 35964 -1
ZEAL 3 27186 -1
LMNX 15 232969 -2
Average 10 107332 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $107 million. That figure was $87 million in CSII’s case. Luminex Corporation (NASDAQ:LMNX) is the most popular stock in this table. On the other hand Zealand Pharma A/S (NASDAQ:ZEAL) is the least popular one with only 3 bullish hedge fund positions. Cardiovascular Systems Inc (NASDAQ:CSII) 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately CSII wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CSII were disappointed as the stock returned -10.4% 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.