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Should I Buy Healthcare Services Group, Inc. (HCSG)?

·6 min read

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Healthcare Services Group, Inc. (NASDAQ:HCSG).

Is Healthcare Services Group, Inc. (NASDAQ:HCSG) the right pick for your portfolio? Investors who are in the know were getting more bullish. The number of bullish hedge fund bets inched up by 1 lately. Healthcare Services Group, Inc. (NASDAQ:HCSG) was in 19 hedge funds' portfolios at the end of March. The all time high for this statistic is 27. Our calculations also showed that HCSG isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

According to most market participants, hedge funds are viewed as worthless, old financial tools of yesteryear. While there are over 8000 funds with their doors open at present, Our experts look at the masters of this club, about 850 funds. Most estimates calculate that this group of people administer the majority of the hedge fund industry's total capital, and by watching their first-class investments, Insider Monkey has spotted a number of investment strategies that have historically outpaced the S&P 500 index. Insider Monkey's flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

Tom Gayner
Tom Gayner

Tom Gayner of Markel Gayner Asset Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind let's go over the recent hedge fund action surrounding Healthcare Services Group, Inc. (NASDAQ:HCSG).

Do Hedge Funds Think HCSG Is A Good Stock To Buy Now?

At the end of March, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the previous quarter. On the other hand, there were a total of 20 hedge funds with a bullish position in HCSG a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Is HCSG A Good Stock To Buy?
Is HCSG A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the most valuable position in Healthcare Services Group, Inc. (NASDAQ:HCSG). AQR Capital Management has a $39.7 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is Royce & Associates, led by Chuck Royce, holding a $31.4 million position; 0.2% of its 13F portfolio is allocated to the company. Some other peers with similar optimism encompass Tom Gayner's Markel Gayner Asset Management, D. E. Shaw's D E Shaw and Francois Rochon's Giverny Capital. In terms of the portfolio weights assigned to each position Rutabaga Capital Management allocated the biggest weight to Healthcare Services Group, Inc. (NASDAQ:HCSG), around 1.14% of its 13F portfolio. Giverny Capital is also relatively very bullish on the stock, designating 0.68 percent of its 13F equity portfolio to HCSG.

As one would reasonably expect, specific money managers have been driving this bullishness. AlphaCrest Capital Management, managed by Mika Toikka, established the most valuable position in Healthcare Services Group, Inc. (NASDAQ:HCSG). AlphaCrest Capital Management had $0.5 million invested in the company at the end of the quarter. Michael Gelband's ExodusPoint Capital also made a $0.5 million investment in the stock during the quarter. The following funds were also among the new HCSG investors: Paul Tudor Jones's Tudor Investment Corp and Parvinder Thiara's Athanor Capital.

Let's check out 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 Silicon Motion Technology Corp. (NASDAQ:SIMO), Four Corners Property Trust, Inc. (NYSE:FCPT), Lordstown Motors Corp. (NASDAQ:RIDE), Crestwood Equity Partners LP (NYSE:CEQP), Cavco Industries, Inc. (NASDAQ:CVCO), Bally's Corporation (NYSE:BALY), and NetScout Systems, Inc. (NASDAQ:NTCT). This group of stocks' market valuations are similar to HCSG's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SIMO,24,447993,6 FCPT,18,115979,6 RIDE,12,27284,-5 CEQP,5,9080,3 CVCO,22,197921,2 BALY,18,415596,-7 NTCT,11,115827,4 Average,15.7,189954,1.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.7 hedge funds with bullish positions and the average amount invested in these stocks was $190 million. That figure was $148 million in HCSG's case. Silicon Motion Technology Corp. (NASDAQ:SIMO) is the most popular stock in this table. On the other hand Crestwood Equity Partners LP (NYSE:CEQP) is the least popular one with only 5 bullish hedge fund positions. Healthcare Services Group, Inc. (NASDAQ:HCSG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HCSG is 64. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and beat the market again by 7.7 percentage points. Unfortunately HCSG wasn't nearly as popular as these 5 stocks and hedge funds that were betting on HCSG were disappointed as the stock returned 8.1% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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