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 second 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 5 years and analyze what the smart money thinks of Healthcare Services Group, Inc. (NASDAQ:HCSG) based on that data and determine whether they were really smart about the stock.
Is Healthcare Services Group, Inc. (NASDAQ:HCSG) worth your attention right now? The best stock pickers were in a bullish mood. The number of long hedge fund bets advanced by 7 in recent months. Healthcare Services Group, Inc. (NASDAQ:HCSG) was in 27 hedge funds' portfolios at the end of June. The all time high for this statistics is 21. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that HCSG isn't among the 30 most popular stocks among hedge funds (click for Q2 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 56 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Joel Greenblatt of Gotham Asset Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Now we're going to go over the latest hedge fund action surrounding Healthcare Services Group, Inc. (NASDAQ:HCSG).
Hedge fund activity in Healthcare Services Group, Inc. (NASDAQ:HCSG)
At the end of the second quarter, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 35% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HCSG over the last 20 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.
Among these funds, D E Shaw held the most valuable stake in Healthcare Services Group, Inc. (NASDAQ:HCSG), which was worth $20.4 million at the end of the third quarter. On the second spot was Markel Gayner Asset Management which amassed $17.1 million worth of shares. Two Sigma Advisors, Arrowstreet Capital, and Royce & Associates 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 3.24% of its 13F portfolio. Giverny Capital is also relatively very bullish on the stock, setting aside 0.87 percent of its 13F equity portfolio to HCSG.
As industrywide interest jumped, key hedge funds have jumped into Healthcare Services Group, Inc. (NASDAQ:HCSG) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the largest position in Healthcare Services Group, Inc. (NASDAQ:HCSG). Arrowstreet Capital had $10.9 million invested in the company at the end of the quarter. Joel Greenblatt's Gotham Asset Management also initiated a $2.6 million position during the quarter. The other funds with brand new HCSG positions are Greg Eisner's Engineers Gate Manager, Peter Algert and Kevin Coldiron's Algert Coldiron Investors, and Michael Gelband's ExodusPoint Capital.
Let's also examine hedge fund activity in other stocks similar to Healthcare Services Group, Inc. (NASDAQ:HCSG). These stocks are International Game Technology PLC (NYSE:IGT), Olin Corporation (NYSE:OLN), Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (NASDAQ:OMAB), Uniti Group Inc. (NASDAQ:UNIT), Immunovant, Inc. (NASDAQ:IMVT), PQ Group Holdings Inc. (NYSE:PQG), and SpringWorks Therapeutics, Inc. (NASDAQ:SWTX). This group of stocks' market caps match HCSG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IGT,23,96618,-2 OLN,33,448219,0 OMAB,4,34250,0 UNIT,17,79043,4 IMVT,31,330242,3 PQG,6,46807,-1 SWTX,15,754975,1 Average,18.4,255736,0.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.4 hedge funds with bullish positions and the average amount invested in these stocks was $256 million. That figure was $127 million in HCSG's case. Olin Corporation (NYSE:OLN) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (NASDAQ:OMAB) is the least popular one with only 4 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 79.7. 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 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 21.3% in 2020 through September 25th and beat the market by 17.7 percentage points. Unfortunately HCSG wasn't nearly as popular as these 10 stocks and hedge funds that were betting on HCSG were disappointed as the stock returned -13% 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.