Does Cidara Therapeutics Inc (NASDAQ:CDTX) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Cidara Therapeutics Inc (NASDAQ:CDTX) has experienced a decrease in hedge fund sentiment in recent months. CDTX was in 6 hedge funds’ portfolios at the end of September. There were 9 hedge funds in our database with CDTX holdings at the end of the previous quarter. Our calculations also showed that CDTX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now we’re going to go over the new hedge fund action regarding Cidara Therapeutics Inc (NASDAQ:CDTX).
Hedge fund activity in Cidara Therapeutics Inc (NASDAQ:CDTX)
Heading into the fourth quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -33% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CDTX over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Biotechnology Value Fund was the largest shareholder of Cidara Therapeutics Inc (NASDAQ:CDTX), with a stake worth $5.4 million reported as of the end of September. Trailing Biotechnology Value Fund was Frazier Healthcare Partners, which amassed a stake valued at $2.6 million. Aisling Capital, Renaissance Technologies, and Dorset 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 Aisling Capital allocated the biggest weight to Cidara Therapeutics Inc (NASDAQ:CDTX), around 3.93% of its 13F portfolio. Frazier Healthcare Partners is also relatively very bullish on the stock, dishing out 0.82 percent of its 13F equity portfolio to CDTX.
Judging by the fact that Cidara Therapeutics Inc (NASDAQ:CDTX) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there exists a select few funds that elected to cut their positions entirely in the third quarter. At the top of the heap, Lawrence Hawkins’s Prosight Capital said goodbye to the largest stake of the 750 funds tracked by Insider Monkey, worth close to $0.6 million in stock. Israel Englander’s fund, Millennium Management, also said goodbye to its stock, about $0.3 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 3 funds in the third quarter.
Let’s check out hedge fund activity in other stocks similar to Cidara Therapeutics Inc (NASDAQ:CDTX). These stocks are Kezar Life Sciences, Inc. (NASDAQ:KZR), ARC Document Solutions Inc (NYSE:ARC), Crown Crafts, Inc. (NASDAQ:CRWS), and Kentucky First Federal Bancorp (NASDAQ:KFFB). This group of stocks’ market valuations match CDTX’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KZR | 8 | 5585 | -2 |
| ARC | 8 | 8213 | 2 |
| CRWS | 8 | 7282 | 3 |
| KFFB | 1 | 512 | 0 |
| Average | 6.25 | 5398 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.25 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $12 million in CDTX’s case. Kezar Life Sciences, Inc. (NASDAQ:KZR) is the most popular stock in this table. On the other hand Kentucky First Federal Bancorp (NASDAQ:KFFB) is the least popular one with only 1 bullish hedge fund positions. Cidara Therapeutics Inc (NASDAQ:CDTX) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on CDTX as the stock returned 17.8% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
