How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Kodiak Sciences Inc (NASDAQ:KOD) and determine whether hedge funds had an edge regarding this stock.
Is Kodiak Sciences Inc (NASDAQ:KOD) a marvelous investment today? Prominent investors were becoming more confident. The number of long hedge fund bets inched up by 8 recently. Kodiak Sciences Inc (NASDAQ:KOD) was in 20 hedge funds’ portfolios at the end of June. The all time high for this statistics is 12. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that KOD isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: 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 a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 percentage points since March 2017 (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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Joseph Edelman of Perceptive Advisors
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Keeping this in mind let’s go over the recent hedge fund action regarding Kodiak Sciences Inc (NASDAQ:KOD).
Hedge fund activity in Kodiak Sciences Inc (NASDAQ:KOD)
At Q2’s end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 67% from the previous quarter. The graph below displays the number of hedge funds with bullish position in KOD over the last 20 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Baker Bros. Advisors held the most valuable stake in Kodiak Sciences Inc (NASDAQ:KOD), which was worth $626.4 million at the end of the third quarter. On the second spot was Perceptive Advisors which amassed $190.2 million worth of shares. Driehaus Capital, GLG Partners, and Osterweis Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Perceptive Advisors allocated the biggest weight to Kodiak Sciences Inc (NASDAQ:KOD), around 3.09% of its 13F portfolio. Baker Bros. Advisors is also relatively very bullish on the stock, earmarking 2.76 percent of its 13F equity portfolio to KOD.
As one would reasonably expect, key money managers have been driving this bullishness. GLG Partners, managed by Noam Gottesman, created the largest position in Kodiak Sciences Inc (NASDAQ:KOD). GLG Partners had $7.6 million invested in the company at the end of the quarter. Karim Abbadi and Edward McBride’s Centiva Capital also initiated a $0.9 million position during the quarter. The following funds were also among the new KOD investors: Parvinder Thiara’s Athanor Capital, Greg Eisner’s Engineers Gate Manager, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.
Let’s now take a look at hedge fund activity in other stocks similar to Kodiak Sciences Inc (NASDAQ:KOD). We will take a look at J&J Snack Foods Corp. (NASDAQ:JJSF), Integer Holdings Corporation (NYSE:ITGR), Wyndham Destinations, Inc. (NYSE:WYND), IBERIABANK Corporation (NASDAQ:IBKC), Avient Corporation (NYSE:AVNT), Camping World Holdings, Inc. (NYSE:CWH), and Federated Hermes, Inc. (NYSE:FHI). This group of stocks’ market valuations are closest to KOD’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| JJSF | 17 | 70981 | 0 |
| ITGR | 17 | 87073 | -3 |
| WYND | 34 | 434802 | 9 |
| IBKC | 26 | 201604 | -4 |
| AVNT | 22 | 193411 | -6 |
| CWH | 23 | 341511 | 7 |
| FHI | 30 | 167797 | 2 |
| Average | 24.1 | 213883 | 0.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.1 hedge funds with bullish positions and the average amount invested in these stocks was $214 million. That figure was $862 million in KOD’s case. Wyndham Destinations, Inc. (NYSE:WYND) is the most popular stock in this table. On the other hand J&J Snack Foods Corp. (NASDAQ:JJSF) is the least popular one with only 17 bullish hedge fund positions. Kodiak Sciences Inc (NASDAQ:KOD) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for KOD is 40. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. A small number of hedge funds were also right about betting on KOD, though not to the same extent, as the stock returned 9.4% during Q3 and outperformed the market.
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Disclosure: None. This article was originally published at Insider Monkey.
