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 Veracyte Inc (NASDAQ:VCYT).
Veracyte Inc (NASDAQ:VCYT) has experienced an increase in support from the world’s most elite money managers in recent months. Veracyte Inc (NASDAQ:VCYT) was in 22 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 24. Our calculations also showed that VCYT isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
In the 21st century investor’s toolkit there are a large number of signals market participants employ to appraise publicly traded companies. A pair of the less utilized signals are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the top picks of the elite fund managers can beat their index-focused peers by a healthy margin (see the details here). Also, our monthly newsletter’s portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.
Cathie Wood of ARK Investment Management
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. Keeping this in mind let’s take a look at the recent hedge fund action regarding Veracyte Inc (NASDAQ:VCYT).
Do Hedge Funds Think VCYT Is A Good Stock To Buy Now?
At the end of June, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 16% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in VCYT over the last 24 quarters. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
Among these funds, ARK Investment Management held the most valuable stake in Veracyte Inc (NASDAQ:VCYT), which was worth $267.4 million at the end of the second quarter. On the second spot was Renaissance Technologies which amassed $9.9 million worth of shares. Fisher Asset Management, Citadel Investment Group, and Clough Capital Partners 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 SilverArc Capital allocated the biggest weight to Veracyte Inc (NASDAQ:VCYT), around 2.69% of its 13F portfolio. Endurant Capital Management is also relatively very bullish on the stock, dishing out 1.54 percent of its 13F equity portfolio to VCYT.
Consequently, key hedge funds have been driving this bullishness. Endurant Capital Management, managed by Vishal Saluja and Pham Quang, created the biggest position in Veracyte Inc (NASDAQ:VCYT). Endurant Capital Management had $5.6 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also made a $1 million investment in the stock during the quarter. The other funds with brand new VCYT positions are Karim Abbadi and Edward McBride’s Centiva Capital, Jinghua Yan’s TwinBeech Capital, and Thomas Bailard’s Bailard Inc.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Veracyte Inc (NASDAQ:VCYT) but similarly valued. These stocks are Rush Street Interactive, Inc. (NYSE:RSI), Sunstone Hotel Investors Inc (NYSE:SHO), Fulgent Genetics, Inc. (NASDAQ:FLGT), Pacira Biosciences Inc (NASDAQ:PCRX), JinkoSolar Holding Co., Ltd. (NYSE:JKS), Pactiv Evergreen Inc. (NASDAQ:PTVE), and Callon Petroleum Company (NYSE:CPE). This group of stocks’ market caps match VCYT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RSI | 15 | 102246 | -2 |
| SHO | 18 | 73632 | 1 |
| FLGT | 13 | 69063 | -5 |
| PCRX | 23 | 433466 | 3 |
| JKS | 7 | 23960 | -6 |
| PTVE | 6 | 112761 | -3 |
| CPE | 17 | 87152 | 1 |
| Average | 14.1 | 128897 | -1.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.1 hedge funds with bullish positions and the average amount invested in these stocks was $129 million. That figure was $352 million in VCYT’s case. Pacira Biosciences Inc (NASDAQ:PCRX) is the most popular stock in this table. On the other hand Pactiv Evergreen Inc. (NASDAQ:PTVE) is the least popular one with only 6 bullish hedge fund positions. Veracyte Inc (NASDAQ:VCYT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for VCYT is 82.6. 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. Hedge funds were also right about betting on VCYT as the stock returned 16.1% since the end of Q2 (through 10/22) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
