In this article we are going to use hedge fund sentiment as a tool and determine whether Denali Therapeutics Inc. (NASDAQ:DNLI) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Denali Therapeutics Inc. (NASDAQ:DNLI) investors should pay attention to an increase in activity from the world’s largest hedge funds in recent months. Denali Therapeutics Inc. (NASDAQ:DNLI) was in 23 hedge funds’ portfolios at the end of September. The all time high for this statistic is 26. There were 22 hedge funds in our database with DNLI holdings at the end of June. Our calculations also showed that DNLI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).
Michael Gelband of ExodusPoint Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV 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. Now let’s take a glance at the key hedge fund action regarding Denali Therapeutics Inc. (NASDAQ:DNLI).
Do Hedge Funds Think DNLI Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2021, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the second quarter of 2021. By comparison, 24 hedge funds held shares or bullish call options in DNLI 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.
Of the funds tracked by Insider Monkey, Casdin Capital, managed by Eli Casdin, holds the number one position in Denali Therapeutics Inc. (NASDAQ:DNLI). Casdin Capital has a $85.8 million position in the stock, comprising 2.1% of its 13F portfolio. Sitting at the No. 2 spot is Marshall Wace LLP, managed by Paul Marshall and Ian Wace, which holds a $26.8 million position; 0.1% of its 13F portfolio is allocated to the stock. Some other professional money managers that are bullish consist of John Overdeck and David Siegel’s Two Sigma Advisors, Jerome Pfund and Michael Sjostrom’s Sectoral Asset Management and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Casdin Capital allocated the biggest weight to Denali Therapeutics Inc. (NASDAQ:DNLI), around 2.13% of its 13F portfolio. Integral Health Asset Management is also relatively very bullish on the stock, setting aside 1.09 percent of its 13F equity portfolio to DNLI.
Consequently, specific money managers were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the biggest position in Denali Therapeutics Inc. (NASDAQ:DNLI). Arrowstreet Capital had $4.9 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $3.2 million investment in the stock during the quarter. The other funds with brand new DNLI positions are Nicholas J. Pritzker’s Tao Capital, Peter Algert’s Algert Global, and Mika Toikka’s AlphaCrest Capital Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Denali Therapeutics Inc. (NASDAQ:DNLI) but similarly valued. These stocks are Coherent, Inc. (NASDAQ:COHR), Paycor HCM Inc. (NASDAQ:PYCR), Cricut, Inc. (NASDAQ:CRCT), RBC Bearings Incorporated (NASDAQ:ROLL), CoreSite Realty Corp (NYSE:COR), Ultragenyx Pharmaceutical Inc (NASDAQ:RARE), and Amkor Technology, Inc. (NASDAQ:AMKR). This group of stocks’ market valuations are closest to DNLI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| COHR | 37 | 1464037 | -6 |
| PYCR | 9 | 21437 | 9 |
| CRCT | 9 | 284261 | -4 |
| ROLL | 22 | 225522 | 13 |
| COR | 15 | 165115 | -1 |
| RARE | 24 | 638601 | -8 |
| AMKR | 25 | 208350 | 6 |
| Average | 20.1 | 429618 | 1.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.1 hedge funds with bullish positions and the average amount invested in these stocks was $430 million. That figure was $180 million in DNLI’s case. Coherent, Inc. (NASDAQ:COHR) is the most popular stock in this table. On the other hand Paycor HCM Inc. (NASDAQ:PYCR) is the least popular one with only 9 bullish hedge fund positions. Denali Therapeutics Inc. (NASDAQ:DNLI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DNLI is 57.5. 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 31.1% in 2021 through December 9th and beat the market again by 5.1 percentage points. Unfortunately DNLI wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on DNLI were disappointed as the stock returned -11.8% since the end of September (through 12/9) 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.
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Disclosure: None. This article was originally published at Insider Monkey.
