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Is Healthcare Services Group, Inc. (HCSG) A Good Stock To Buy?

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A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended September 30th, so let’s proceed with the discussion of the hedge fund sentiment on Healthcare Services Group, Inc. (NASDAQ:HCSG).

Is HCSG a good stock to buy? Healthcare Services Group, Inc. (NASDAQ:HCSG) investors should be aware of an increase in hedge fund sentiment lately. Healthcare Services Group, Inc. (NASDAQ:HCSG) was in 21 hedge funds' portfolios at the end of the third quarter of 2021. The all time high for this statistic is 27. There were 18 hedge funds in our database with HCSG positions at the end of the second quarter. Our calculations also showed that HCSG isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Michael Gelband of ExodusPoint Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV 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. Keeping this in mind we're going to take a look at the fresh hedge fund action encompassing Healthcare Services Group, Inc. (NASDAQ:HCSG).

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

Heading into the fourth quarter of 2021, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards HCSG over the last 25 quarters. With the smart money's sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

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

More specifically, AQR Capital Management was the largest shareholder of Healthcare Services Group, Inc. (NASDAQ:HCSG), with a stake worth $32 million reported as of the end of September. Trailing AQR Capital Management was Royce & Associates, which amassed a stake valued at $28.4 million. Markel Gayner Asset Management, D E Shaw, and Giverny Capital 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 Rutabaga Capital Management allocated the biggest weight to Healthcare Services Group, Inc. (NASDAQ:HCSG), around 0.92% of its 13F portfolio. Giverny Capital is also relatively very bullish on the stock, designating 0.55 percent of its 13F equity portfolio to HCSG.

As industrywide interest jumped, specific money managers were breaking ground themselves. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, initiated the most valuable position in Healthcare Services Group, Inc. (NASDAQ:HCSG). Marshall Wace LLP had $2.4 million invested in the company at the end of the quarter. Greg Eisner's Engineers Gate Manager also made a $0.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Michael Gelband's ExodusPoint Capital and Bruce Kovner's Caxton Associates LP.

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 LendingTree, Inc (NASDAQ:TREE), Himax Technologies, Inc. (NASDAQ:HIMX), Frontline Ltd (NYSE:FRO), Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY), Proto Labs Inc (NYSE:PRLB), Service Properties Trust (NASDAQ:SVC), and Alector, Inc. (NASDAQ:ALEC). This group of stocks' market caps are similar to HCSG's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TREE,24,161274,-6 HIMX,18,206039,2 FRO,8,18650,-5 PLAY,26,469451,-2 PRLB,17,259887,-2 SVC,17,87028,4 ALEC,20,236209,2 Average,18.6,205505,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.6 hedge funds with bullish positions and the average amount invested in these stocks was $206 million. That figure was $139 million in HCSG's case. Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) is the most popular stock in this table. On the other hand Frontline Ltd (NYSE:FRO) is the least popular one with only 8 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 67.4. 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 29.6% in 2021 and beat the market again by 3.6 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 -28% since the end of September (through 12/31) 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.