At Insider Monkey, we pore over the filings of nearly 750 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not Natus Medical Inc (NASDAQ:BABY) makes for a good investment right now.
Natus Medical Inc (NASDAQ:BABY) has seen a decrease in hedge fund sentiment in recent months. BABY was in 15 hedge funds' portfolios at the end of December. There were 19 hedge funds in our database with BABY positions at the end of the previous quarter. Our calculations also showed that baby isn't among the 30 most popular stocks among hedge funds.
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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let's take a look at the recent hedge fund action encompassing Natus Medical Inc (NASDAQ:BABY).
How are hedge funds trading Natus Medical Inc (NASDAQ:BABY)?
At Q4's end, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from the second quarter of 2018. By comparison, 21 hedge funds held shares or bullish call options in BABY a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Ian Simm's Impax Asset Management has the biggest position in Natus Medical Inc (NASDAQ:BABY), worth close to $21.9 million, accounting for 0.4% of its total 13F portfolio. Coming in second is Fisher Asset Management, managed by Ken Fisher, which holds a $19.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining peers that are bullish consist of Ric Dillon's Diamond Hill Capital, J. Daniel Plants's Voce Capital and Peter Schliemann's Rutabaga Capital Management.
Because Natus Medical Inc (NASDAQ:BABY) has experienced a decline in interest from hedge fund managers, we can see that there lies a certain "tier" of hedge funds that elected to cut their positions entirely in the third quarter. Intriguingly, D. E. Shaw's D E Shaw sold off the biggest stake of the "upper crust" of funds tracked by Insider Monkey, comprising about $1.9 million in stock. Noam Gottesman's fund, GLG Partners, also dumped its stock, about $0.8 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 4 funds in the third quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Natus Medical Inc (NASDAQ:BABY) but similarly valued. We will take a look at Hertz Global Holdings, Inc. (NYSE:HTZ), Tompkins Financial Corporation (NYSEAMEX:TMP), Arrowhead Pharmaceuticals, Inc. (NASDAQ:ARWR), and Tahoe Resources Inc (NYSE:TAHO). This group of stocks' market valuations resemble BABY's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HTZ,23,783285,-3 TMP,4,13449,-3 ARWR,13,87955,1 TAHO,17,62923,4 Average,14.25,236903,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $237 million. That figure was $96 million in BABY's case. Hertz Global Holdings, Inc. (NYSE:HTZ) is the most popular stock in this table. On the other hand Tompkins Financial Corporation (NYSEAMEX:TMP) is the least popular one with only 4 bullish hedge fund positions. Natus Medical Inc (NASDAQ:BABY) 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 BABY wasn't nearly as popular as these 15 stock and hedge funds that were betting on BABY were disappointed as the stock returned -29.7% 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.