Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients' money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space.
Is Addus Homecare Corporation (NASDAQ:ADUS) a buy right now? Money managers are selling. The number of bullish hedge fund positions went down by 4 recently. Our calculations also showed that adus isn't among the 30 most popular stocks among hedge funds.
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.
Let's go over the key hedge fund action encompassing Addus Homecare Corporation (NASDAQ:ADUS).
What have hedge funds been doing with Addus Homecare Corporation (NASDAQ:ADUS)?
At the end of the fourth quarter, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -22% from the second quarter of 2018. By comparison, 8 hedge funds held shares or bullish call options in ADUS 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.
More specifically, Renaissance Technologies was the largest shareholder of Addus Homecare Corporation (NASDAQ:ADUS), with a stake worth $28.5 million reported as of the end of December. Trailing Renaissance Technologies was AQR Capital Management, which amassed a stake valued at $15.9 million. Deerfield Management, Point72 Asset Management, and Cruiser Capital Advisors were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that Addus Homecare Corporation (NASDAQ:ADUS) has witnessed falling interest from the entirety of the hedge funds we track, logic holds that there is a sect of money managers that decided to sell off their entire stakes heading into Q3. It's worth mentioning that Dmitry Balyasny's Balyasny Asset Management sold off the largest stake of the 700 funds monitored by Insider Monkey, valued at about $2.3 million in stock, and Noam Gottesman's GLG Partners was right behind this move, as the fund dumped about $1.3 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 4 funds heading into Q3.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Addus Homecare Corporation (NASDAQ:ADUS) but similarly valued. We will take a look at AGM Group Holdings Inc. (NASDAQ:AGMH), Golden Ocean Group Ltd (NASDAQ:GOGL), BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX), and Talos Energy, Inc. (NYSE:TALO). This group of stocks' market caps are closest to ADUS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AGMH,1,326,1 GOGL,9,156622,3 BCRX,18,371303,-2 TALO,13,52918,-1 Average,10.25,145292,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $145 million. That figure was $76 million in ADUS's case. BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX) is the most popular stock in this table. On the other hand AGM Group Holdings Inc. (NASDAQ:AGMH) is the least popular one with only 1 bullish hedge fund positions. Addus Homecare Corporation (NASDAQ:ADUS) 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 ADUS wasn't nearly as popular as these 15 stock and hedge funds that were betting on ADUS were disappointed as the stock returned -8.3% 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.