Cepheid (CPHD) Not Doing Enough to Attract Smart Money

Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the third quarter. Among them, Valeant and Micron ranked among the top 30 picks and both lost around 20%. Citigroup, which was the third most popular stock, lost 10% amid uncertainty regarding the interest rates. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Is Cepheid (NASDAQ:CPHD) undervalued? Prominent investors are reducing their bets on the stock. The number of long hedge fund bets retreated by 1 recently. CPHD was in 16 hedge funds’ portfolios at the end of September. There were 17 hedge funds in our database with CPHD holdings at the end of the second quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as IDACORP Inc (NYSE:IDA), Apple Hospitality REIT Inc (NYSE:APLE), and Post Holdings Inc (NYSE:POST) to gather more data points.

In the eyes of most investors, hedge funds are viewed as underperforming, outdated investment tools of years past. While there are more than 8,000 funds trading at the moment, we look at the moguls of this group, around 700 funds. It is estimated that this group of investors shepherd most of the smart money’s total capital, and by following their first-class investments, Insider Monkey has brought to light numerous investment strategies that have historically surpassed Mr. Market. Insider Monkey’s small-cap hedge fund strategy surpassed the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

With all of this in mind, let’s review the new action encompassing Cepheid (NASDAQ:CPHD).

Hedge fund activity in Cepheid (NASDAQ:CPHD)

Heading into Q4, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 6% dip from one quarter earlier. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their holdings meaningfully (or had already accumulated large positions).

Of the funds tracked by Insider Monkey, Alyeska Investment Group, managed by Anand Parekh, holds the number one position in Cepheid (NASDAQ:CPHD). Alyeska Investment Group has a $53.3 million position in the stock, comprising 0.7% of its 13F portfolio. The second-largest stake is held by Israel Englander of Millennium Management, with a $51.5 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism consist of Clifford Fox’s Columbus Circle Investors, Paul Sinclair’s Blue Jay Capital Management, and Mario Gabelli’s GAMCO Investors.

Because Cepheid (NASDAQ:CPHD) has experienced falling interest from the entirety of the hedge funds we track, it’s safe to say that there is a sect of hedge funds who sold off their full holdings by the end of the third quarter. At the top of the heap, Renaissance Technologies said goodbye to the biggest investment of the “upper crust” of funds watched by Insider Monkey, worth close to $18.1 million in stock, and Ken Greenberg and David Kim’s Ghost Tree Capital was right behind this move, as the fund said goodbye to about $6.1 million worth of shares. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 1 fund by the end of the third quarter.

Let’s go over hedge fund activity in other stocks similar to Cepheid (NASDAQ:CPHD). These stocks are IDACORP Inc (NYSE:IDA), Apple Hospitality REIT Inc (NYSE:APLE), Post Holdings Inc (NYSE:POST), and Sprouts Farmers Market Inc (NASDAQ:SFM). This group of stocks’ market valuations resemble CPHD’s market valuation.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $515 million. That figure was $203 million in CPHD’s case. Post Holdings Inc (NYSE:POST) is the most popular stock in this table. On the other hand Apple Hospitality REIT Inc (NYSE:APLE) is the least popular one with only 5 bullish hedge fund positions. Cepheid (NASDAQ:CPHD) 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. In this regard POST might be a better candidate to consider a long position.