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Hedge Funds Have Never Been This Bullish On Health Catalyst, Inc (HCAT)

Debasis Saha

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of Health Catalyst, Inc (NASDAQ:HCAT) based on that data.

Health Catalyst, Inc (NASDAQ:HCAT) investors should pay attention to an increase in hedge fund sentiment lately. Our calculations also showed that HCAT 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). Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Joseph Edelman of Perceptive Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology's influence will go beyond online payments. So, we are checking out this futurist's moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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. Now let's take a peek at the new hedge fund action regarding Health Catalyst, Inc (NASDAQ:HCAT).

What does smart money think about Health Catalyst, Inc (NASDAQ:HCAT)?

At the end of the first quarter, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 75% from the previous quarter. The graph below displays the number of hedge funds with bullish position in HCAT over the last 18 quarters. With the smart money's sentiment swirling, there exists a few key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Is HCAT A Good Stock To Buy?

More specifically, Marshall Wace LLP was the largest shareholder of Health Catalyst, Inc (NASDAQ:HCAT), with a stake worth $26.7 million reported as of the end of September. Trailing Marshall Wace LLP was Point72 Asset Management, which amassed a stake valued at $20.9 million. Rock Springs Capital Management, Alyeska Investment Group, and Perceptive 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 G2 Investment Partners Management allocated the biggest weight to Health Catalyst, Inc (NASDAQ:HCAT), around 0.81% of its 13F portfolio. Rock Springs Capital Management is also relatively very bullish on the stock, earmarking 0.46 percent of its 13F equity portfolio to HCAT.

Now, key hedge funds were breaking ground themselves. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, assembled the most outsized position in Health Catalyst, Inc (NASDAQ:HCAT). Marshall Wace LLP had $26.7 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also initiated a $20.9 million position during the quarter. The following funds were also among the new HCAT investors: Josh Goldberg's G2 Investment Partners Management, Robert B. Gillam's McKinley Capital Management, and Israel Englander's Millennium Management.

Let's now review hedge fund activity in other stocks similar to Health Catalyst, Inc (NASDAQ:HCAT). We will take a look at Infinera Corp. (NASDAQ:INFN), Retail Opportunity Investments Corp (NASDAQ:ROIC), Fluor Corporation (NYSE:FLR), and Norbord Inc. (NYSE:OSB). All of these stocks' market caps are similar to HCAT's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position INFN,14,203469,-3 ROIC,18,43584,-3 FLR,24,94067,0 OSB,12,19441,-4 Average,17,90140,-2.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $90 million. That figure was $90 million in HCAT's case. Fluor Corporation (NYSE:FLR) is the most popular stock in this table. On the other hand Norbord Inc. (NYSE:OSB) is the least popular one with only 12 bullish hedge fund positions. Health Catalyst, Inc (NASDAQ:HCAT) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 13.3% in 2020 through June 25th and surpassed the market by 16.8 percentage points. Unfortunately HCAT wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); HCAT investors were disappointed as the stock returned 18.8% during the second quarter 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 most of these stocks already outperformed the market in 2020.

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

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