GenMark Diagnostics, Inc (GNMK): Are Hedge Funds Right About This Stock?

The worries about the election and the ongoing uncertainty about the path of interest-rate increases have been keeping investors on the sidelines. Of course, most hedge funds and other asset managers have been underperforming main stock market indices since the middle of 2015. Interestingly though, smaller-cap stocks registered their best performance relative to the large-capitalization stocks since the end of the June quarter, suggesting that this may be the best time to take a cue from their stock picks. In fact, the Russell 2000 Index gained more than 15% since the beginning of the third quarter, while the Standard and Poor’s 500 benchmark returned less than 6%. This article will lay out and discuss the hedge fund and institutional investor sentiment towards GenMark Diagnostics, Inc (NASDAQ:GNMK) .

Is GenMark Diagnostics, Inc (NASDAQ:GNMK) a sound investment right now? The smart money is thoroughly becoming more confident. The number of bullish hedge fund investments inched up by 5 in recent months. GNMK was in 11 hedge funds’ portfolios at the end of the third quarter of 2016. There were 6 hedge funds in our database with GNMK holdings at the end of the previous quarter. At the end of this article we will also compare GNMK to other stocks including Enanta Pharmaceuticals Inc (NASDAQ:ENTA), Hostess Brands Inc (NASDAQ:GRSH), and Changyou.Com Ltd (ADR) (NASDAQ:CYOU) to get a better sense of its popularity.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.

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Now, let’s take a peek at the fresh action surrounding GenMark Diagnostics, Inc (NASDAQ:GNMK).

What have hedge funds been doing with GenMark Diagnostics, Inc (NASDAQ:GNMK)?

At Q3’s end, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, an increase of 83% from the previous quarter. On the other hand, there were a total of 10 hedge funds with a bullish position in GNMK at the beginning of this year. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Eric Bannasch’s Cadian Capital has the number one position in GenMark Diagnostics, Inc (NASDAQ:GNMK), worth close to $42.3 million, corresponding to 2.2% of its total 13F portfolio. On Cadian Capital’s heels is Phill Gross and Robert Atchinson of Adage Capital Management, with a $30.7 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining peers with similar optimism include Eli Casdin’s Casdin Capital, Millennium Management, one of the 10 largest hedge funds in the world, and Anand Parekh’s Alyeska Investment Group. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Millennium Management, founded by Israel Englander, established the largest position in GenMark Diagnostics, Inc (NASDAQ:GNMK). Millennium Management had $6.6 million invested in the company at the end of the quarter. Zach Schreiber’s Point State Capital also made a $2.4 million investment in the stock during the quarter. The following funds were also among the new GNMK investors: Jim Simons’ Renaissance Technologies, Ken Griffin’s Citadel Investment Group, and John Overdeck and David Siegel’s Two Sigma Advisors.

Let’s also examine hedge fund activity in other stocks similar to GenMark Diagnostics, Inc (NASDAQ:GNMK). These stocks are Enanta Pharmaceuticals Inc (NASDAQ:ENTA), Hostess Brands Inc (NASDAQ:GRSH), Changyou.Com Ltd (ADR) (NASDAQ:CYOU), and Capital Senior Living Corporation (NYSE:CSU). This group of stocks’ market valuations match GNMK’s market valuation.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $120 million. That figure was $97 million in GNMK’s case. Hostess Brands Inc (NASDAQ:GRSH) is the most popular stock in this table. On the other hand Enanta Pharmaceuticals Inc (NASDAQ:ENTA) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks GenMark Diagnostics, Inc (NASDAQ:GNMK) is even less popular than ENTA. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

Disclosure: None