While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Editas Medicine, Inc. (NASDAQ:EDIT).
Is Editas Medicine, Inc. (NASDAQ:EDIT) a bargain? Investors who are in the know were becoming less hopeful. The number of long hedge fund bets shrunk by 1 in recent months. Editas Medicine, Inc. (NASDAQ:EDIT) was in 23 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 EDIT isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 24 hedge funds in our database with EDIT holdings at the end of March.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
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. Now we’re going to check out the recent hedge fund action encompassing Editas Medicine, Inc. (NASDAQ:EDIT).
Do Hedge Funds Think EDIT Is A Good Stock To Buy Now?
Heading into the third quarter of 2021, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the previous quarter. The graph below displays the number of hedge funds with bullish position in EDIT over the last 24 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, ARK Investment Management was the largest shareholder of Editas Medicine, Inc. (NASDAQ:EDIT), with a stake worth $406.7 million reported as of the end of June. Trailing ARK Investment Management was Two Sigma Advisors, which amassed a stake valued at $37.8 million. Citadel Investment Group, Citadel Investment Group, and Himension Capital 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 Soleus Capital allocated the biggest weight to Editas Medicine, Inc. (NASDAQ:EDIT), around 0.83% of its 13F portfolio. Himension Capital is also relatively very bullish on the stock, dishing out 0.79 percent of its 13F equity portfolio to EDIT.
Judging by the fact that Editas Medicine, Inc. (NASDAQ:EDIT) has faced falling interest from hedge fund managers, we can see that there is a sect of hedgies that decided to sell off their full holdings by the end of the second quarter. At the top of the heap, Israel Englander’s Millennium Management sold off the largest position of the 750 funds monitored by Insider Monkey, worth close to $8.6 million in stock, and Greg Eisner’s Engineers Gate Manager was right behind this move, as the fund dropped about $0.8 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 1 funds by the end of the second quarter.
Let’s now review hedge fund activity in other stocks similar to Editas Medicine, Inc. (NASDAQ:EDIT). We will take a look at Eastern Bankshares, Inc. (NASDAQ:EBC), Denbury Inc. (NYSE:DEN), Southwest Gas Holdings, Inc. (NYSE:SWX), Southwestern Energy Company (NYSE:SWN), Turning Point Therapeutics, Inc. (NASDAQ:TPTX), Dillard’s, Inc. (NYSE:DDS), and The Brink’s Company (NYSE:BCO). This group of stocks’ market caps are similar to EDIT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EBC | 20 | 115205 | 6 |
| DEN | 29 | 996614 | -1 |
| SWX | 19 | 145257 | -4 |
| SWN | 27 | 257726 | 5 |
| TPTX | 28 | 646677 | -5 |
| DDS | 18 | 91497 | 5 |
| BCO | 17 | 346879 | -7 |
| Average | 22.6 | 371408 | -0.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.6 hedge funds with bullish positions and the average amount invested in these stocks was $371 million. That figure was $507 million in EDIT’s case. Denbury Inc. (NYSE:DEN) is the most popular stock in this table. On the other hand The Brink’s Company (NYSE:BCO) is the least popular one with only 17 bullish hedge fund positions. Editas Medicine, Inc. (NASDAQ:EDIT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for EDIT is 57.8. 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 24% in 2021 through October 22nd and beat the market again by 1.6 percentage points. Unfortunately EDIT wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on EDIT were disappointed as the stock returned -33.2% since the end of June (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 many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
