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Were Hedge Funds Right About Healthcare Services Group, Inc. (HCSG)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Healthcare Services Group, Inc. (NASDAQ:HCSG).

Is Healthcare Services Group, Inc. (NASDAQ:HCSG) a buy here? Prominent investors are turning bullish. The number of long hedge fund bets rose by 2 recently. Our calculations also showed that HCSG isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

At the moment there are a multitude of signals stock market investors employ to value stocks. A duo of the most underrated signals are hedge fund and insider trading signals. Our experts have shown that, historically, those who follow the top picks of the best investment managers can trounce the S&P 500 by a significant margin (see the details here).

Tom Gayner

Tom Gayner of Markel Gayner Asset Management

We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a glance at the fresh hedge fund action regarding Healthcare Services Group, Inc. (NASDAQ:HCSG).

Hedge fund activity in Healthcare Services Group, Inc. (NASDAQ:HCSG)

Heading into the first quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HCSG over the last 18 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Millennium Management, managed by Israel Englander, holds the largest position in Healthcare Services Group, Inc. (NASDAQ:HCSG). Millennium Management has a $18.4 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Two Sigma Advisors, led by John Overdeck and David Siegel, holding a $15.6 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other peers that are bullish comprise Tom Gayner’s Markel Gayner Asset Management, Noam Gottesman’s GLG Partners and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Giverny Capital allocated the biggest weight to Healthcare Services Group, Inc. (NASDAQ:HCSG), around 0.7% of its 13F portfolio. Markel Gayner Asset Management is also relatively very bullish on the stock, dishing out 0.19 percent of its 13F equity portfolio to HCSG.

As one would reasonably expect, some big names were leading the bulls’ herd. Renaissance Technologies, managed by Jim Simons (founder), created the biggest position in Healthcare Services Group, Inc. (NASDAQ:HCSG). Renaissance Technologies had $2.6 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also initiated a $2.5 million position during the quarter. The other funds with brand new HCSG positions are Paul Tudor Jones’s Tudor Investment Corp, Michael Gelband’s ExodusPoint Capital, and Mika Toikka’s AlphaCrest Capital Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Healthcare Services Group, Inc. (NASDAQ:HCSG) but similarly valued. These stocks are NetScout Systems, Inc. (NASDAQ:NTCT), Principia Biopharma Inc. (NASDAQ:PRNB), Masonite International Corp (NYSE:DOOR), and Skyline Champion Corporation (NYSE:SKY). All of these stocks’ market caps match HCSG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NTCT 20 110982 6
PRNB 20 555851 8
DOOR 21 422459 3
SKY 26 286701 -1
Average 21.75 343998 4

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $344 million. That figure was $102 million in HCSG’s case. Skyline Champion Corporation (NYSE:SKY) is the most popular stock in this table. On the other hand NetScout Systems, Inc. (NASDAQ:NTCT) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Healthcare Services Group, Inc. (NASDAQ:HCSG) is even less popular than NTCT. Hedge funds clearly dropped the ball on HCSG as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but still beat the market by 4.2 percentage points. A small number of hedge funds were also right about betting on HCSG as the stock returned -10.6% during the same time period and outperformed the market by an even larger margin.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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