Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the nearly unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.
Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH) has experienced a decrease in activity from the world’s largest hedge funds lately. Our calculations also showed that DCPH isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a gander at the latest hedge fund action regarding Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH).
Hedge fund activity in Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH)
At the end of the second quarter, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -12% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DCPH over the last 16 quarters. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
More specifically, OrbiMed Advisors was the largest shareholder of Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH), with a stake worth $81.6 million reported as of the end of March. Trailing OrbiMed Advisors was Redmile Group, which amassed a stake valued at $50.1 million. Millennium Management, Alkeon Capital Management, and Deerfield Management were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH) has experienced bearish sentiment from hedge fund managers, logic holds that there exists a select few hedgies that decided to sell off their full holdings by the end of the second quarter. At the top of the heap, Richard Driehaus’s Driehaus Capital dumped the biggest stake of the “upper crust” of funds tracked by Insider Monkey, comprising close to $3.5 million in stock. Ori Hershkovitz’s fund, Nexthera Capital, also dropped its stock, about $1 million worth. These moves are important to note, as aggregate hedge fund interest fell by 2 funds by the end of the second quarter.
Let’s now review hedge fund activity in other stocks similar to Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH). These stocks are Carbonite Inc (NASDAQ:CARB), Wabash National Corporation (NYSE:WNC), Natus Medical Inc (NASDAQ:BABY), and Trueblue Inc (NYSE:TBI). This group of stocks’ market valuations resemble DCPH’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CARB | 19 | 125272 | -1 |
| WNC | 15 | 63811 | -1 |
| BABY | 22 | 93186 | -2 |
| TBI | 15 | 83342 | -2 |
| Average | 17.75 | 91403 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $91 million. That figure was $234 million in DCPH’s case. Natus Medical Inc (NASDAQ:BABY) is the most popular stock in this table. On the other hand Wabash National Corporation (NYSE:WNC) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH) is even less popular than WNC. Hedge funds clearly dropped the ball on DCPH as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on DCPH as the stock returned 50.5% during the third quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
