Hedge Funds Are Crazy About Verastem Inc (VSTM)

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Verastem Inc (NASDAQ:VSTM)? The smart money sentiment can provide an answer to this question.

Is Verastem Inc (NASDAQ:VSTM) a worthy investment now? Hedge funds were in an optimistic mood. The number of bullish hedge fund bets increased by 9 lately. Verastem Inc (NASDAQ:VSTM) was in 21 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 18. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that VSTM isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Felix Baker of Baker Bros.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. 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 let’s take a look at the key hedge fund action regarding Verastem Inc (NASDAQ:VSTM).

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

At the end of June, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 75% from one quarter earlier. On the other hand, there were a total of 18 hedge funds with a bullish position in VSTM a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Baker Bros. Advisors, managed by Julian Baker and Felix Baker, holds the biggest position in Verastem Inc (NASDAQ:VSTM). Baker Bros. Advisors has a $87.5 million position in the stock, comprising 0.4% of its 13F portfolio. Coming in second is Consonance Capital Management, managed by Mitchell Blutt, which holds a $55.4 million position; the fund has 6.7% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish contain Mark Lampert’s Biotechnology Value Fund / BVF Inc, James A. Silverman’s Opaleye Management and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Consonance Capital Management allocated the biggest weight to Verastem Inc (NASDAQ:VSTM), around 6.66% of its 13F portfolio. Acuta Capital Partners is also relatively very bullish on the stock, dishing out 3.28 percent of its 13F equity portfolio to VSTM.

As industrywide interest jumped, key money managers have been driving this bullishness. Millennium Management, managed by Israel Englander, established the biggest position in Verastem Inc (NASDAQ:VSTM). Millennium Management had $5.7 million invested in the company at the end of the quarter. Christiana Goh Bardon’s Burrage Capital Management also initiated a $2.9 million position during the quarter. The other funds with brand new VSTM positions are Greg Martinez’s Parkman Healthcare Partners, Andre F. Perold’s HighVista Strategies, and Matthew L Pinz’s Pinz Capital.

Let’s now review hedge fund activity in other stocks similar to Verastem Inc (NASDAQ:VSTM). We will take a look at Watford Holdings Ltd. (NASDAQ:WTRE), Hawkins, Inc. (NASDAQ:HWKN), Transportadora de Gas del Sur SA (NYSE:TGS), Titan Machinery Inc. (NASDAQ:TITN), United Fire Group, Inc. (NASDAQ:UFCS), Ethan Allen Interiors Inc. (NYSE:ETH), and TORM plc (NASDAQ:TRMD). This group of stocks’ market caps are similar to VSTM’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.6 hedge funds with bullish positions and the average amount invested in these stocks was $103 million. That figure was $241 million in VSTM’s case. Titan Machinery Inc. (NASDAQ:TITN) is the most popular stock in this table. On the other hand TORM plc (NASDAQ:TRMD) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Verastem Inc (NASDAQ:VSTM) is more popular among hedge funds. Our overall hedge fund sentiment score for VSTM is 90. 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. 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 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. Unfortunately VSTM wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on VSTM were disappointed as the stock returned -37.3% since the end of the second quarter (through 10/22) 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 most of these stocks already outperformed the market since 2019.

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

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