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Hedge Funds Have Never Been This Bullish On Inspire Medical Systems, Inc. (INSP)

Nina Todic

We can judge whether Inspire Medical Systems, Inc. (NYSE:INSP) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.

Is Inspire Medical Systems, Inc. (NYSE:INSP) a worthy investment right now? Investors who are in the know are becoming more confident. The number of long hedge fund positions rose by 2 in recent months. Our calculations also showed that insp isn't among the 30 most popular stocks among hedge funds. INSP was in 15 hedge funds' portfolios at the end of December. There were 13 hedge funds in our database with INSP holdings at the end of the previous quarter.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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.

James Flynn Deerfield Management
James Flynn Deerfield Management

Let's go over the key hedge fund action encompassing Inspire Medical Systems, Inc. (NYSE:INSP).

What have hedge funds been doing with Inspire Medical Systems, Inc. (NYSE:INSP)?

At the end of the fourth quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from the second quarter of 2018. By comparison, 0 hedge funds held shares or bullish call options in INSP a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with INSP Positions
No of Hedge Funds with INSP Positions

According to Insider Monkey's hedge fund database, OrbiMed Advisors, managed by Samuel Isaly, holds the biggest position in Inspire Medical Systems, Inc. (NYSE:INSP). OrbiMed Advisors has a $77.3 million position in the stock, comprising 1.4% of its 13F portfolio. Sitting at the No. 2 spot is Richard Driehaus of Driehaus Capital, with a $19.8 million position; the fund has 0.8% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions comprise James E. Flynn's Deerfield Management, Efrem Kamen's Pura Vida Investments and Bihua Chen's Cormorant Asset Management.

As aggregate interest increased, key money managers have been driving this bullishness. Laurion Capital Management, managed by Benjamin A. Smith, established the most valuable position in Inspire Medical Systems, Inc. (NYSE:INSP). Laurion Capital Management had $3.5 million invested in the company at the end of the quarter. Paul Tudor Jones's Tudor Investment Corp also initiated a $0.4 million position during the quarter. The following funds were also among the new INSP investors: Efrem Kamen's Pura Vida Investments and Ken Griffin's Citadel Investment Group.

Let's check out hedge fund activity in other stocks similar to Inspire Medical Systems, Inc. (NYSE:INSP). These stocks are Washington Prime Group Inc. (NYSE:WPG), Varex Imaging Corporation (NASDAQ:VREX), Emerald Expositions Events, Inc. (NYSE:EEX), and Codexis, Inc. (NASDAQ:CDXS). All of these stocks' market caps resemble INSP's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WPG,13,9064,3 VREX,15,86005,1 EEX,11,8913,1 CDXS,13,276255,1 Average,13,95059,1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $95 million. That figure was $178 million in INSP's case. Varex Imaging Corporation (NASDAQ:VREX) is the most popular stock in this table. On the other hand Emerald Expositions Events, Inc. (NYSE:EEX) is the least popular one with only 11 bullish hedge fund positions. Inspire Medical Systems, Inc. (NYSE:INSP) is not the most popular stock in this group but hedge fund interest is still above average. 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately INSP wasn't nearly as popular as these 15 stock and hedge funds that were betting on INSP were disappointed as the stock returned 12.8% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.

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

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