Diffusion Pharmaceuticals Inc. (DFFN): Hedge Funds In Wait-and-See Mode

Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Diffusion Pharmaceuticals Inc. (NASDAQ:DFFN).

Hedge fund interest in Diffusion Pharmaceuticals Inc. (NASDAQ:DFFN) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that DFFN isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). At the end of this article we will also compare DFFN to other stocks including Core Molding Technologies, Inc. (NYSE:CMT), Sino-Global Shipping America, Ltd. (NASDAQ:SINO), and Acasti Pharma Inc. (NASDAQ:ACST) to get a better sense of its popularity.

In today’s marketplace there are plenty of signals market participants put to use to size up their stock investments. A couple of the less utilized signals are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the top picks of the elite money managers can trounce the S&P 500 by a significant amount (see the details here). Also, our monthly newsletter’s portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

John Overdeck of Two Sigma Advisors

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $26 biotech stock for $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we’re going to take a glance at the new hedge fund action encompassing Diffusion Pharmaceuticals Inc. (NASDAQ:DFFN).

Do Hedge Funds Think DFFN Is A Good Stock To Buy Now?

At first quarter’s end, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 4 hedge funds with a bullish position in DFFN a year ago. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

The largest stake in Diffusion Pharmaceuticals Inc. (NASDAQ:DFFN) was held by Renaissance Technologies, which reported holding $1.7 million worth of stock at the end of December. It was followed by Millennium Management with a $0.3 million position. The only other hedge fund that is bullish on the company was Two Sigma Advisors.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Citadel Investment Group. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Millennium Management).

Let’s go over hedge fund activity in other stocks similar to Diffusion Pharmaceuticals Inc. (NASDAQ:DFFN). These stocks are Core Molding Technologies, Inc. (NYSE:CMT), Sino-Global Shipping America, Ltd. (NASDAQ:SINO), Acasti Pharma Inc. (NASDAQ:ACST), Document Security Systems, Inc. (NYSE:DSS), SilverBow Resorces, Inc. (NYSE:SBOW), Cortland Bancorp (NASDAQ:CLDB), and NexPoint Real Estate Finance, Inc. (NYSE:NREF). This group of stocks’ market values are similar to DFFN’s market value.

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As you can see these stocks had an average of 2.1 hedge funds with bullish positions and the average amount invested in these stocks was $10 million. That figure was $2 million in DFFN’s case. SilverBow Resorces, Inc. (NYSE:SBOW) is the most popular stock in this table. On the other hand Sino-Global Shipping America, Ltd. (NASDAQ:SINO) is the least popular one with only 1 bullish hedge fund positions. Diffusion Pharmaceuticals Inc. (NASDAQ:DFFN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DFFN is 60.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th and beat the market again by 3.3 percentage points. Unfortunately DFFN wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on DFFN were disappointed as the stock returned -14.1% since the end of March (through 6/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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