Hedge Funds Are Selling Rocket Pharmaceuticals, Inc. (RCKT)

In this article we are going to use hedge fund sentiment as a tool and determine whether Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT) was in 19 hedge funds’ portfolios at the end of June. The all time high for this statistic is 33. RCKT investors should be aware of a decrease in support from the world’s most elite money managers in recent months. There were 22 hedge funds in our database with RCKT positions at the end of the first quarter. Our calculations also showed that RCKT 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.

Joseph Edelman of Perceptive Advisors

Keeping this in mind let’s take a glance at the new hedge fund action surrounding Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT).

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

At Q2’s end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in RCKT over the last 24 quarters. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

More specifically, Perceptive Advisors was the largest shareholder of Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT), with a stake worth $121.9 million reported as of the end of June. Trailing Perceptive Advisors was Tang Capital Management, which amassed a stake valued at $112.1 million. RA Capital Management, Cormorant Asset Management, and Great Point 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 Tang Capital Management allocated the biggest weight to Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT), around 22.32% of its 13F portfolio. Great Point Partners is also relatively very bullish on the stock, designating 7.59 percent of its 13F equity portfolio to RCKT.

Due to the fact that Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT) has witnessed a decline in interest from the aggregate hedge fund industry, logic holds that there exists a select few hedgies that slashed their full holdings in the second quarter. Intriguingly, Israel Englander’s Millennium Management sold off the largest stake of all the hedgies monitored by Insider Monkey, valued at an estimated $5.5 million in stock, and John W. Rende’s Copernicus Capital Management was right behind this move, as the fund dumped about $0.4 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds in the second quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT) but similarly valued. These stocks are Group 1 Automotive, Inc. (NYSE:GPI), Main Street Capital Corporation (NYSE:MAIN), Embraer SA (NYSE:ERJ), CVB Financial Corp. (NASDAQ:CVBF), PriceSmart, Inc. (NASDAQ:PSMT), Kennedy-Wilson Holdings Inc (NYSE:KW), and Opko Health Inc. (NASDAQ:OPK). This group of stocks’ market valuations are similar to RCKT’s market valuation.

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As you can see these stocks had an average of 14.3 hedge funds with bullish positions and the average amount invested in these stocks was $145 million. That figure was $539 million in RCKT’s case. Group 1 Automotive, Inc. (NYSE:GPI) is the most popular stock in this table. On the other hand Main Street Capital Corporation (NYSE:MAIN) is the least popular one with only 8 bullish hedge fund positions. Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RCKT is 61.6. 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. 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 RCKT wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on RCKT were disappointed as the stock returned -33.6% 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.